Tsunami and the Markets

U.S. investors have been looking across the seas to find good investment opportunities for years. Unfortunately for many, the Japanese market looked extremely undervalued in comparison to the U.S. stock market. This led to about $1 billion dollars going directly into the Japanese economy shortly before the tsunami hit, sending the nation into turmoil.

This natural disaster serves as a stark warning to all investors. You never know what will happen within the Forex market. Things can change in seconds; the U.S. dollar might rise and fall during the course of a day, but barring some unforeseen circumstance, the changes won’t create too large of a price range. Natural or man-made disasters, however, can cause a currency to drop in price in a devastating manner.

The tsunami has caused markets to drop drastically all around the world. The yen has not gone unaffected either; over the course of the three days following news of the disaster, the yen in relation to the U.S. dollar dropped from a high close to USD/JPY 83.2 down to 81.4. For a highly traded currency pair, this was an extreme drop.

The lesson to take away from this is that you never can fully understand or predict the moves that the Forex market experiences. Underlining this, you can look back at the way that the Forex market has moved in the past. Sometimes it moves in a completely logical and predictable manner—just when you begin to understand it, something comes along that will completely re-write the rules of the game. Currency trading is a fluid process. It changes constantly, necessitating that traders always evolve their trading habits.

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