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Forex Response to the Falling Iranian Rial
What will be the Forex response to the falling Iranian Rial? Things are getting more difficult in Iran as the country continues to pursue its nuclear ambitions despite strict sanctions imposed by the major powers. In the last week the Rial lost a third of its value and Iranian authorities are arresting those selling Euros and dollars for Rials on the streets of Tehran. News reports tell of increasing public unrest in response to rising prices. Imports have become prohibitively expensive in Iran and the working man often cannot afford to buy such staples as lamb and chicken to feed his family. Stories of daily price increases are reminiscent of those from the German Weimar Republic when it took a million paper Deutschmarks to buy a loaf of bread. For those able to trade the Rial the most profitable currency pair just might be the Iranian Rial and almost any other currency. Our interest at this point is in the Forex response to the falling Iranian Rial. Will enough Rials be sold to help prop up the Euro? Will the Forex response to the falling Iranian Rial be a rise in the dollar, Yen, or Swiss franc?
Perception Becomes Reality
As sanctions led by the USA and Western Europe take hold Iranians come to believe that the Rial will fall in value. In fact they see the prices of common consumer items rising. The response of a rational person is to seek refuge in gold or a stronger and more stable currency. Right now any currency is more of a safe haven than the Rial. As Iranian come to believe that their currency is in free fall they start selling Rials for dollars, Euros, gold and whatever. Perception becomes reality as the Forex response to a falling Rial, in Iran, is a weaker and weaker Rial. Unrest has come to the point where the government could fall. For the West the question would be if a new government would submit to inspections of their nuclear program. For Forex traders the issue is the Forex response to a falling Iranian Rial and continuing unrest in the region. While things may be difficult, in Iran they are not trading a cheaper Euro as the Rial is in free fall.
What Is Next?
What the West hopes is that Iran will open its nuclear program to inspection and cease efforts to build a nuclear bomb. In all likelihood the measures that are driving the Rial downward will continue as long as Iran persists in its nuclear ambitions. In the background there has always been the threat of an armed conflict. The Forex response to a falling Rial may not be huge outside of Iran but the Forex response to a threat of war will likely drive the Euro, dollar, Yen and other major currencies down. It is already driving the price of crude oil up. While traders use tools such as the Morning Star in Forex trading to assess market sentiment they may also wish to keep an eye on the news to see what is happening in the streets of Tehran.