We have now entered a Brave New World of Forex Trading following the disclosure of a US Surveillance program (“PRISM”), central bank manipulation of currencies (“currency wars”) and random acts of regulators (which are not mutually exclusive). With the increasing politicization of the financial markets, Forex traders are now becoming more exposed to market changes from geo-political rather than economic risk factors.
As we know markets subjected to political rather than economic risk factors create unpredictable sharp short term volatility risk and cross country correlation risk which is almost impossible to risk manage and therefore costly to FOREX traders.
The key driver for ongoing FIAT currency intervention is the ongoing battle between emerging and emerged economies trying to out-compete each other for export markets. Some of the competitors in these currency wars are also seeking economic competitive advantage against their competitors via access to information from state owned cyber espionage programs. The ongoing use of illegally obtained information from state sponsored surveillance programs which would likely be used in currency market intervention would further undermine the properly functioning and confidence in FIAT markets.
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