Analysts believe that for the beginning of the week, U.S. stocks will follow European stocks downward in price. The major indices are already pointing downward, and the big culprit is the Greece debate. In a “last ditch” effort for resolution over the weekend, no agreement could be made between Greece and its debtors, indicating that the European economy is about to be shaken up.
Why are U.S. stocks getting prepared to follow suit, though? How does the debate currently going on in Brussels affect Wall Street? Let’s break it down a little and see how it affects U.S. based traders.
First, if Greece defaults on its debt to the IMF, the impact goes well beyond just the European Union. The banks and organizations that are affected by this extend out of Greece, throughout Europe and Asia, and into the United States, to a degree. Second, and while the EU will be hit the hardest, there will also be a trickle down effect on the banks outside. When these banks are impacted, the economy as a whole becomes affected, too. And with the Federal Reserve considering rate hikes in the next few months, there is a strong possibility that this will weigh into their decision. The Fed’s primary goal is to regulate the U.S. dollar and economy, but when an event like this has such a strong sway on other currencies, it’s impossible for the dollar not to be swayed too. That’s the nature of how currencies interact with each other.
In other words, U.S. stocks might not even have any business interest in Greece, or the EU as a whole, but the way that the international economy works simply does not protect them from actions in this part of the world. However, the euro/U.S. dollar currency pair will not reflect this as much because the Forex market has a relational value. The euro will become weaker compared to the dollar, even if the dollar is weakened, too. This will be reflected by the euro going down and the dollar going up. For those with an interest in Forex trading, new chances to make money will be popping up throughout the rest of the Greece debt crisis.
The good news for traders is that these trick down actions can be very predictable. By watching the European market beforehand, we know that the U.S. market is going to drop as indicated by the major indices like the Dow Jones and the S&P 500. We know that this is going to largely be reactionary at first, so by watching the data as it progresses, we can get a good idea of when these indices will begin to right themselves back up to where they should be. So, by adopting a strategy of buying inverse ETFs, or by positioning ourselves with put binary options focused on the Dow and S&P, we can get ready for a drop in price. Both of these can be used over the short term, too, which allows us to safely exit positions and get ready to go long once the markets correct themselves from the kneejerk reaction. You can sell your inverse ETFs off and buy traditional ETFs, or you can let your put binary options expire and start going with call options. As long as you are thoroughly familiar with the type of trading that you will be using and the nuances contained within it, there are lots of opportunities to take advantage of the markets when clear data like this exists and gives us an accurate prediction of what the next several days will be like.