A nation's economy always suffers during war. In some cases, the ripples can be felt on a global scale.
Turkey and Syria look to be on a warpath which may disrupt global trade and it is bound to affect Forex as well. But to what extent？
Read this article to discover why this potential battle is at a tipping point and its potential spillover on the Forex market.
We'll also cover how to protect your Forex investments if push comes to shove.
What is the nature of the clash between Turkey and Syria？
For this, well need to dive into a short history lesson..
After the end of the First World War, the Kurdish people were displaced from their indigenous lands. Many Kurds were forced to live in Turkey, Syria, Iraq, and Iran in poor conditions.
Eventually, the 1980s saw the rise of the Kurdistan‘s Workers’ Party which started an armed rebellion against the Turkish state. Their aim: to claim an independent state within Turkish borders. The aftermath of this action saw many violent clashes between the two.
As a result of the instability, the People's Protection Units (YPG) took control of a region in northeastern Syria. Soon, the group declared this region a semi-autonomous “statelet.”
Turkey began seeing this new state as a threat to its security because the YPG was associated with the PPK. Its sworn enemy.
Fast forward to 2019, and President Trump ordered the complete withdrawal of U.S. troops from Syrian soil.
This gave Turkey's President Erdogan, a chance to settle scores with the “semi-independent state.” A conflict broke out but soon saw a cease-fire agreement in 2020. But, since then, this pact has is crumbling and seems to have hit a stumbling block.
In November 2022, a bomb blast went off in the Central area of Istanbul. The resulting explosion killed 6 and wounded 81.
The suspect arrested by Turkish police turned out to be a Syrian woman with Kurdish militant ties. Turkey began blaming the Kurds for this grave incident and has threatened war on them.
With such a delicate situation, it seems further conflict is only a matter of time.
How will a Turkey-Syria clash affect the forex market？
Any conflict between Turkey and Syria could seriously affect the forex market. These are some possible ripples in the financial sector:
The impact on the Lira
In 2018, Turkey's Lira suffered a crisis due to sanctions and tariffs. It also recorded 4-week lows against the USD, which happened when Turkey attacked Kurdish forces in northeast Syria.
Any further sanctions would weaken the Lira and make it an undesirable currency for forex trading.
Adverse effects on the risk currencies of the JPY and the CHF
If both nations go to war, there would be an instant bid into safe haven currencies. This means increased reliance on the Bank of Japan and the Swiss National Bank. Both currencies are seen as the safest currencies to buy during a crisis.
In this case, traders would have to buy the JPY and the CHF on risk-off flows. But, high beta currencies like AUD and NZD could end up being sold off. This includes pairs like AUDJPY, AUDCHF, NZDJPY, and NZDCHF.
Global Markets could fall
Turkey fighting a war with Syria could bring other prominent players into the fray. For example, Turkey is a member of NATO, and this means NATO could move in to support Turkey if Syria fights back.
But Syria is backed by Russia. President Bashar al-Assad has also expressed anger at the Turkish Forces being on Syrian soil. If things escalate, Russia could lend military strength to the Syrian forces.
The potential for many players in this conflict would drag down indices worldwide. Equity investors are very sensitive to risk, so there could be an outflow from global equity markets.
The best-performing stocks would be defensive stocks from companies providing essentials, and good examples are food products, healthcare items, and energy supplies.
Gold would find bids, but Copper and Iron Ore would drop
Gold should find bids if Turkey engages Syria due to its safe-haven status. But, the extent of the bids is based on the seriousness of the conflict. It will also depend on how long the war is expected to last.
But, prices for Copper and Iron Ore are expected to fall, and this is because slower global growth prospects would reduce their demand.
Best ways to trade if war breaks out
The forex market might become unpredictable with so much uncertainty about the incoming clash. Here are some tips and strategies to help you invest better:
Lower leverage
Volatility will rise above average, so it's better to use lower leverage than usual when trading. If the market suddenly swings, it could wipe out a stop loss point within seconds before going in the opposite direction. You must risk less of your account in each trade during warring periods.
Broadening the range
Another tip when trading during a war is to make trades with more comprehensive ranges. This means keeping the same risk-reward ratio while widening stop-loss and take-profit points. With the increased volatility, trades are bound to be completed faster. You should use this opportunity to assess the market and close more significant trades.
Oscillator adjustment
When “thinking big,” you must consider oversold and overbought conditions. Imagine you use the Relative Strength Index on the 4h-chart. You can apply 14 candles and use the 30 and 70 bands to see when an asset is overstretched.
At this point, you can choose to widen them to 20 and 80. It's an excellent way to trade during the extreme conditions that stretch out during a war.
Watch for a reversal
Traders need to always keep in mind that market trends can reverse. This can happen if a cease-fire is agreed upon between Turkey and Syria. That‘s why you need to stay updated on the latest global news. It’s the best way to stay financially afloat if the market suddenly changes.
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The war between Turkey and Syria has been brewing for a while. Whether it happens or not, you need to be in the best Forex position possible.
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