If you’re like me, you’ve been watching the events in Egypt unfold over the past few days.
I’ve been following reports closely on TV and online as I feel that this is an historical event that can have massive effects on the world.
If you don’t know what I’m talking about, here’s a brief summary:
After 30 years of tyrannical rule by Hosni Mubarak, it seems that the Egyptian people have had enough. They’ve been flooding the streets in their thousands, demanding that Mubarak step down and allow for open and free elections. So far, he has refused to comply.
The result is chaos in Egypt, one of the most important countries in the Middle East. The future is uncertain: some hope that democracy will be born and stability restored and others fear that a new tyrant will emerge, this one more warlike than Mubarak and lead the region into worse times.
There are many reasons why you should care about this, but as this is a Forex site, let’s focus on the two things that may happen in the case of the US Dollar.
Option #1 – Fear grows, the Dollar Rises
The Us Dollar has long been a safe-haven currency. It has proven to be the refuge anytime it seems like the market is heading into trouble. Well, the fear levels have certainly risen. Fear that Egypt will destabilize and that other Arab countries will follow is raising a lot of concerns. This is good for the Dollar.
Option #2 – Oil rises, dollar falls
The fears about Egypt and the Middle East in general may also lead to rising oil prices (something which is already happening at this moment). As Oil is quoted in US Dollars, the higher its price, the lower the Dollar tends to be. It’s a simple question of “How many Dollars do I need to buy a barrel of oil”.
As you can seem, there are two conflicting forces in play here. Fear is good for the Dollar, rising oil prices is very bad. The key is to follow oil prices and news of Egypt over the next few days. The longer Mubarak stays in power, the lower the fear in the market. However, if he does lose power, you need to keep your eyes on Oil prices to have a better indication of where the Dollar is headed.
For more predictions visit my US Dollar Forecast 2011
