Trading any financial market, the currency market included, is a process that involves many risk factors. Prices move in fractions of a second, counterparties can default, etc. I want to focus here on one risk factor in particular – political risk.
We tend to forget about country risk or political event risk, only to realize all of a sudden and ask ourselves, “well what has happened to get the market to react this way?”
There are, of course, a lot of high profile political events currently taking place in almost all countries within the Middle East and North Africa. Revolutions have started in Tunisia, and were then followed by Egypt, Libya, Bahrain, Syria and Yemen. Most, if not all rulers of these countries have focused on making money for themselves by abusing the powers given to them by the people. Most of these rulers, whether still hanging on to power or already stepped down, have done so little during the past 30 to 40 years in attempt to make a better living for their people. In return the uprisings erupted, and now Tunisia and Egypt are going through a transition period aiming for real democracy.
We read now in Egypt’s newspapers that the people of the country are accusing the military council of failing to fulfill the demands of the January 25th, 2011 revolution in Tahrir square. This is the military council that seemed to back the protesters and smoothed the transition as Mubarak unwillingly stepped aside. The people had demands which the military council has only fulfilled to a fraction of a degree after agreeing to all of them in the first place when they sided with the revolution. The people of Egypt waited and waited, talked and asked, and only got promise. Now, the people of Egypt are rising again against the same regime that’s still left over from Mubarak’s rule of 30 years, including the Egypt Military Council on Friday May 27th, 2011.
Egypt’s economy is tiny compared to the world economy and very unlikely to have a significant effect on the foreign exchange markets but at times of unrest there are usually some instruments affected for short or long term trades such as gold, oil, the US dollar and Japanese yen. Much of this will depend on how Friday will end in Cairo.
Members of the military council are worried about this Friday and since they know about it, they have made some concessions. We all read yesterday across all the world’s media that Mubarak will be tried for giving orders to shoot at peaceful protesters with live ammunition and ordering the killing of over 800 people and causing about 6000 injuries. To think that the military would put Mubarak on trial 6 months ago would have been absurd, this is some minds can be viewed as progress. However, this demand was only fulfilled due to the people’s announcement for the revolution on Friday, being called Friday DAY OF RAGE 2. Whether the Military Council has democratic intentions at heart remains to be seen. The events are still unfolding by the second and maybe more concessions will be made. I will be tweeting the events as they happen so if you have any interest you should follow us on Twitter.
The effect of this uprising is going to reach much further and I will try to keep everyone posted.
Have a great evening.
Moheb Hanna has been working in the FX markets for 18 years. He was born in Cairo, where many of his friends, family, and professional colleagues still reside. He is CMS Forex’s resident Middle East expert.
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