The US economy is posed for what many expect to be a significant downturn and very possible return to recession due to political discord. While the fiscal cliff was averted in the end of 2012 there appears to be little political movement to avert $85 Billion in spending cuts posed to take place beginning March 1st. This reduction in government spending combined in a loss of consumer confidence is predicted to cause a recessionary period in the US economy that may echo globally.
With an accompanying lowering of US stock prices followed by expected lower market indexes globally traditional stock profit strategies will be rare. Steady decline in stock prices combined with reduced earnings for dividends leave little room for short term positions being productive in stocks through conventional stock market investing.
Short term positions in currency exchange and commodities markets will provide opportunities for profits. This will result from both typical currency fluctuations as well as more money being moved into these markets. In currency and commodity markets equally, profits can be made so long as fluctuation is taking place and irrelevant to the actual direction of that fluctuation.
The perceived expectation of a general decline in the value of the USD against major currencies as spending cuts dampen the US economy should be tempered by expectations of similar slowing or recessionary growth in other economies echoing the US outlook.
This combined with tacit approval of many financial markets of reduced spending may work to strengthen USD. Further slowing in the UK economy pushing the impetus for reduction of AAA rating could also push the value of the GBP down against other currencies as well as continued decline against the USD continuing a 7 month trend.
The combined result of the fluctuations in major currencies and expected volatility in the commodities markets leaves spread betting companies and Forex traders in a position to take advantage of key indicators to reap profits. As these profits do not rely on economic growth they are insulated from an overall downturn in global economies.
As with any volatile period, short term positions and automated trades to take advantage of profit opportunities and mitigate potential losses is the common strategy. Careful research and use of multiple indicators in determining positions to take as opposed to blind trending is the best approach.
Of specific interest and worthy of attention are interests rates in the various economies and consumer price index – key indicators of inflation. Inflationary concerns will have a rapid and dramatic effect on currency valuations.
In the near term taking positions excluding the value of the USD will insulate you from volatility of the next month of economic unrest in US markets but also reduce positions available for profit taking. It should be noted that pronounced recession in the US economy will echo globally bringing other major currencies into a similar position in short order. Attention to economic stimulus packages by other countries may have short term effects on those currencies to be considered in your positions.