Currencies don’t like political uncertainty and they certainly don’t like wars or the firing of missiles, which can lead to wars.
Case in point: On Saturday, April 4, North Korea’s Kim Jong Il launched a Taepondong-2 missile towards Japan. Remember, this type of missile has the ability to reach Alaska, Hawaii, and parts of the western United States.
By now, we all know what happened. Stage one of the missile fell into the Sea of Japan, while the remaining stages along with the payload, which North Korea claimed was a satellite, fell into the Pacific Ocean. No object entered orbit and no debris fell on Japan, according to the U.S. military.
If something really mushroomed out of this, the U.S. dollar would benefit, especially vs. the yen. That's because when money gets scared, it runs behind the biggest guy, which in this case is the world’s biggest super power and world’s reserve currency, the U.S. dollar.
These are not normally long-term shifts but they can cause noticeable short- to medium-term shifts in money that can greatly affect a currency trading account in the near-term. So, it’s definitely something to stay on top of.
Therefore, be aware when countries like North Korea start flexing their muscles. At those times, it would not be good to be short USD/JPY, for instance.
When uncertainty rises like this, you never want to be in the currency that could be hurt the most. This is why, in times like these, money runs to the dollar and to gold and out of the country or countries that could be the most affected.
Traders of currencies can take advantage of these big short-term swings, and currency investors need to be aware of this so they can dodge these short-term bullets, too.
None of us can anticipate or prevent the potential outcome of events such as these, but we can be aware of what's happening and position ourselves to profit from it as it happens.
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