Trading Forex- Currencies of Eastern Europe.
Article by Mike P. Kulej
Since 2000 Forex scene became less crowded. Number of traders’ favorite financial vehicles have been absorbed into the new European currency, the Euro. Gone are the days when one could trade the likes of Spanish Peseta, German Mark, Belgian Franc, Italian Lira and number of others. Or are they?
Since the break up of the old Soviet block, currencies of the countries previously hidden behind Iron Curtain became freely floating, viable financial vehicles. In EasternEurope and Baltic States there are nine countries whose currencies are outside the Euro zone. In the minds of many traders, that’s where the opportunities are.
We are talking about states which are members of European Union, such as Poland, Hungary, Slovakia, Czech Republic, Estonia, Lithuania, Latvia and a few others. Their economies are industrialized, political systems are democratic and after decades of stagnation under communist rules they are going through period of extensive economic changes. They are becoming more and more like countries from the west.
Many brokers offer some of these currencies for trading. Polish Zloty, Czech Koruna and Hungarian Forint are available and enjoy steady rise in volume. Due to economic reforms instituted in their respective countries, they have seen a rise in value against Dollar and Euro. They already have over ten years of history (data), which makes them suitable for analysis. Spreads are still relatively wide, and they are not very active outside of European business hours. Perhaps not the best candidates for day trading.
Longer term positions, using daily or weekly charts, can be, however quite rewarding. There is number of reasons. All countries joining European Union, also agree to join common currency. Before that happens, new members must meet strict entry criteria. That means, their fiscal policies must steadily improve, and once those membership requirements are met, they also must be maintained for a few years. Public spending, debt and inflation must meet certain goals. All that is likely to be rewarded by appreciating currencies. When the conversion date happens, it will be in the best interest of those countries to see their currencies strong. Everybody wants to see wages and pensions as close to European averages as possible.
When they join Euro zone, these currencies will disappear. But it will not happen very soon. Hungary will not meet the goals before 2016. In Poland, this whole matter will be put to a public referendum. Given a negative outcome of similar votes in Sweden and Denmark, Polish Zloty might be around for a long time. Since EU Council already established a precedent of having member states retain their currencies, who knows what will transpire?
No matter what happens few years down the road, fundamentals strongly suggest that currencies of Eastern Europe are on a road to appreciation. They should be around for at least another decade. Traders with longer time view and taste for the exotic should definitely give them a second look and reap the rewards.
About the Author
Mike Kulej is a Chief Forex Strategist for Spectrum Forex LLC., and a creator of highly effective “Rainbow” trading system. He specializes in mechanical trading systems as explained on www.spectrumforex.com. Spectrum Forex LLC offers numerous services to individual traders. With questions and comments e-mail him at firstname.lastname@example.org.