Could Oil Prices Trigger a Decline in the Forex Market?

Since the onset of the Great Recession, financial and forex market traders have become well versed in the art of investing in a volatile economic climate. From the dreaded fiscal cliff to the scarcely believable federal government shutdown of 2014, financial market traders have learned how to manage risk and maximise income even during times of austerity. This is especially true of forex traders, as the foreign exchange is naturally one of the most volatile trading environments imaginable.

Another financial and forex market crisis may be about to envelop traders, however, as plunging oil prices are set to create increase volatility and turbulence in the market place.  The price of oil was cut in half in late June, and this has already had a debilitating impact on the global economy. Not only are some small, U.S. based exploration stocks down by more than 50%, for example, but the usually strong and consistent Russian rouble is in freefall and now trading at record lows against the U.S. dollar (USD).

Oil and the Forex Market: Could we see another Global Financial Crisis

This is a perfect storm from the perspective of investors, as the slashing of crude oil prices has impacted in the value of stocks and currencies while also hindering global economic growth. This then causes additional issues within the financial markets, forcing traders to seek flight and pushing the economy towards the brink of a financial crisis. While the robust outlook of contemporary forex traders and their aptitude for managing risk means that it is too early to predict a full-scale fiscal collapse, investors should probably prepare themselves for a period of sustained turbulence.

Most recently, turmoil gripped foreign exchange traders after oil prices fell below $60 a barrel and the Russian rouble collapsed into a total tailspin. This had a devastating impact on oil-rich nations such as Norway, as the Norwegian Krone (NOK) fell to its lowest rate in more than a decade against the USD and even dropped below parity with its Swedish counterpart for the first time in more than 15 years. With several currencies now feeling the full effects of tumbling oil prices, the entire market has been plunged into volatility with many investors now looking to adopt a risk-averse approach and reduce their trading volumes.

This is especially the case for investors with a long-term outlook, as the price of oil is likely to remain at rock-bottom levels for the foreseeable future. Given that this is likely to trigger a deeper and more impact economic contraction in Russia, global growth will be impacted further while the Eurozone will also experience turbulence that it can well do without. The New York Empire Manufacturing index also recorded disappointing economic data recently, and this could adversely affect the USD and compound the problems throughout Russia and Europe.

The Last word for Forex Traders: Surviving Periods of Austerity

While the Russian rouble and similar currencies will struggle to recover until the market standard price of oil is restored, the forex market still offers the potential growth and profitability for traders. Take traditionally safe-haven currencies such as the Japanese Yen and Swiss Franc, for example, which typically rebound as the market declines and offer investors an outlet for their capital.

Both of these currencies have risen significantly in the last month and since the price of oil began to plummet, so traders should consider integrating these into their existing portfolios. Additionally, they should also look to partner with an experienced online brokerage firm, who can help them to execute informed decision making and provide them with access to breaking news and economic trends as they unfold. Check out FxPro’s economic calculator to get started.


About the Author
Robert Turp promotes excellence in trading by offering you a frank, unbiased view of forex trading in educational and informational content. He provides all the resources you require to improve your knowledge and practical abilities. The goal is to make the forex market as accessible to as many individuals as possible, and to help everyone make the very most of it.
  1. Haroun Reply

    Many brokers are suspending trade on ruble pairs. I wonder if more currencies will follow this path…

  2. admin Reply

    Yes, also noted that for those not suspended, leverage/gearing ratios reduced quite a bit..

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