As political tension rose in Egypt recently the dollar went on a rally. This is the dollar as a safe haven currency. The risk of traffic through the Suez Canal being affected by chaos in the ancient nation made Europeans worry and the Euro go down. Factors influencing the EUR/USD pair currently include the ongoing debt concerns on the continent. That situation by itself profits the dollar as a safe haven currency. However, recent concern that Egypt would melt down into chaos and Islamic extremism brought the dollar as a safe have currency to the fore again. Despite the many legitimate concerns about the US economic recovery and the effect of massive debt on the long term value of the dollar the dollar, for many is the best of choices when economic and political times become worrisome.
Along with the dollar, the Yen and Swiss franc are considered safe currency refuges in times of trouble. Why is the Swiss franc and why is the Yen considered a safe haven currency? All of the safe haven currencies are from countries with stable economic and, especially, political systems. All have their economic problems as virtually no one made it through the recent market crash unscathed. However, the long term relative stability of the USA, Switzerland, and Japan make each of them a safe refuge in times of instability elsewhere. Because Switzerland is in Europe, but not in the EU, it shares some of the concern about stability in Egypt. Thus we see the Yen as well as the dollar as a safe haven currency in this situation. Recent news tells us that President Mubarak is stepping down in response to massive public demonstrations. The situation seems to have resolved itself in the short term without violence. However, foreign affairs experts comment that Egypt has a long way to go to re-establish its political systems after thirty years of semi-dictatorial rule by Mubarak. The other concern than affects the dollar as a safe haven currency is that Egypt, under Mubarak, has been an island of international stability for three decades. There has been no further war with Israel.
How to trade Forex successfully is typically to engage the market during times of economic volatility. It is the old blood in the streets argument about buying stocks. The problem for the currency trader is to use his crystal ball to anticipate the outcome of the situation in Egypt, for example, and anticipate the movement of various currencies in response to world events. Using the dollar as a safe haven currency may be the best way to preserve capital during uncertain times. It is however, best to seek a safe haven early, before the price of the dollar is bid up by everyone else seeking the dollar as a safe haven currency. Then, when things are ready to improve, selling your dollars for temporarily depressed currencies can be profitable. Typically, traders will rely upon fundamentals for their long term projections. If, for example, they believe that the Euro will resolve its long term debt concerns and that Egypt will put its house together they will use the short term drop in the Euro to buy and then hold as world events remedy themselves.
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