Mundial and national currency - how does the World Cup affect Forex?
Forex traders, in addition to the main pairs, often pay attention to the national currency, because there are unconditional "local" economic reasons that make it possible to most accurately predict its growth or decline.
For example, the currency of any state is most likely to strengthen in the presidential election and falls as a result of a state rebellion or coup. In countries with a developed commodity model of the economy, the exchange rate may depend on the dynamics of oil prices, and a strong recession or rise in energy resources may lead to a projected growth rate. Betting on these events brings “conditionally guaranteed” profit to traders, but elections, like raw materials collapse, and local crisis are rare occurrences.
There is another rare, but more or less accurate way to predict the future movement of individual national currencies - Soccer World Cup. Statistics will surprise you)
Copa Mundial de Fútbol, - This Spanish expression has given the household name "mundial" the world championship in this sport. Translated, it means - "The main international football competition"
The FIFA International Federation brings together the teams that have passed the preliminary qualifying round for the final championship in various countries.
Football, as a sports discipline, has been part of the Olympic competitions since 1908, until in 1928 it “earned” the right to hold a separate World Cup. Since 1930, for 85 years (with a break for World War II), dozens of times every four years, millions of fans from different parts of the world cross the state border at the appointed time to rejoice, grieve and be a historical participant in the victory or loss of their team.
The current championship is the 21st in a row, held in Russia, the next championship will be held in Qatar. Usually one host country is selected, only once in the history of FIFA violated this rule, entrusting the holding of the world championship to two countries at the same time.
Football and currency economy
The basis of the economic stimulating effect of the World Cup is a significant influx of foreign currency and a surge in consumer spending. The popularity of this sport attracts several million tourists to the country who are ready to spend their savings before the final matches.
Local residents also participate in this holiday, so some citizens create additional liquidity in the national currency, using savings or withdrawing deposits.
Even before the congress of guests, the host country spends millions of state funds, as well as tranches of foreign and domestic investors, to prepare the infrastructure. The surge in investment in the national economy stimulates increased demand for "local currency", but ensures that the Central Bank does not react. There is no sense for the regulator to “be distracted” by short-term speculative trends that will disappear by themselves after the final match of the world championship played.
The predictability of the event and the response is used by Forex traders for short-term earnings. Speculative funds of currency speculators attracted by the World Cup, strengthen the national currency of the host country of the mundial.
Championship and currency take-off statistics
The Forex currency market dates back to 1971, the Big Seven adopted the US dollar, as a measure of other currencies, after America refused to adhere to the binding of national money to the value of gold. The determination of the exchange rate by the market method fully worked in 1977.
The first country to host the World Cup in full-fledged currency trading was Argentina. After the coup in 1976, a military junta ruled in the country at that time, so national money was not pegged to the US dollar. Other objective indicators show the country's GDP growth, despite the economic crisis and the coup that took place a year before the Championship.
In 1982, Spain was honored to meet national football teams from different countries. The country's economy was in ruins after a political crisis with an unsuccessful attempt at a 1981 coup and a protracted 1979 world crisis. Therefore, the national currency constantly "lost" positions to the US dollar.
The World Championship was held from June 13 to July 11, 1982 against the backdrop of the country's preparations for early elections in connection with the loss of the ruling party 93% of its supporters.
The USDPES currency chart clearly shows that events tragically affected the course of the Spanish peseta, which from March to August 1982 almost doubled the price from 63 to 101 for 1 US dollar.
The schedule is given in a weekly format, where the appreciation of the national currency in the first two weeks of the championship is clearly visible.
The baton for the reception of the mundial from the Spaniards took over Mexico in 1986. Unfortunately, at that time, the country defaulted on external debt, so the Mexican peso, considered the most stable currency in Latin America, was excluded from market trading on the Forex market and appeared there only in the 1990s.
With the beginning of the last decade of the 20th century, world football events again moved to the territory of the Old World, where Italy met guests and teams. The tournament lasted for a month - from June 8 to July 8 - the country's economy was in good shape, the lira significantly strengthened against the US dollar. Therefore, the holding of the World Cup only accelerated the strengthening of the national currency.
In 1994, the football championship returned to the New World - the national football teams gathered in the United States. The event coincided with the creation of a free trade zone between Canada and Mexico under the NAFTA agreement, where America played a key role in saving Mexico from a total crisis. Events have led the country to spend more than $ 50 billion on its “neighbor”.
The FIFA World Cup traditionally lasted a month, started on June 17 and ended on July 17, at which time an active sale of US dollars was held in the Forex market, traders chose any major currency. Accurately assess the negative mood of currency speculators in 1994 will help the graph DX (USDX) - the dollar index against a basket of major world currencies.
The course literally collapsed before and after the championship and only two weeks after the start of the match could stop this decline, which continued further.
The currency and economic crisis in Asia from 1997-1998 coincided with the World Cup in France - the country hosted fans and teams from June 10 to July 12, 1998. Traders were determined to sell the franc, so on the chart the USDFRF pair exceeded the threshold of 6 francs for 1 dollar. The situation changed dramatically in the first two weeks of the championship, the national currency strengthened, but after losing ground.
In 2002, the mundial was held for the first time in the Asian region, the national flavor of which was demonstrated to the guests and hosts of the Republic of Korea. The country survived the economic crisis surprisingly quickly and successfully restructured the model of chaebols - companies controlled by family clans.
At the time of the games, from May 31 to June 30, the South Korean won was strongly strengthening against the US dollar. The championship helped the currency continue this movement in the USDKRW pair, as can be seen from the chart below.
In 2006, the championship returned to Europe and was held from June 9 to July 9 in Germany, which became part of the united European Union with a single currency - EUR. The German economy was at a high level of development, as was social policy, but the exchange rate was determined by the general assessment of the Eurozone.
The EURUSD rate before the first meetings of football teams began to plummet, but with the first shots on the ball stopped and turned on growth to the final battle for the Cup.
Similar behavior of the national currency was observed in South Africa, which became the first country in the African continent chosen by FIFA to select the best national football team. 16 teams came together in fights, battles lasted a month from June 12 to July 13, 2010. At that time, the national currency did not have a clear trend, but with the beginning of the opening of the championship it began to grow, reaching a maximum in the first two weeks.
Since June 14, 2018, the World Cup has been held in Russia. The team competition attracted 2 million fans and once again reminded of the unpredictability of sports results. The country is under the yoke of economic sanctions, so the ruble loses to the US dollar and the Forex market.
Mundial managed to stop spasmodic growth, but two weeks after the start is already behind, so the negative trend may continue.
How to make money at the Forex World Championship trader?
World Cups are always a positive event, which is reflected in the strengthening of the national currency, but cannot reverse negative trends. According to statistics, a positive effect begins after two to three days after the start of the match and does not last longer than two weeks from the start of a sporting event.
If a football celebration coincides with a local or global economic crisis, you should buy local currency at the nearest support levels, while during the recovery period - at the current market price.
Frequent coincidences of the mundial events with the negative in the economy once again prove the theory of the cyclical nature of these phenomena.
It is completely pointless to count on the fact that, along with the take-off of the ball, the ruble exchange rate will also take off. The world championship will only keep its course due to the influx of foreign capital, which will just as quickly cease to maintain the bar in one place. As a result, it is expected that the rate will continue to decline with the prospect of acceleration. History teaches us that a rise follows a decline, but in our case, holding in one place should already be perceived as a rise, and at the end of the World Cup, traders should pay attention to the continued fall of the ruble.
Ceteris paribus, the World Cup strengthens the currency of the host country for the duration of the event. But if everything was bad in the country, then the World Cup will only slow down for a while. After the end of the World Cup, support disappears and the currency usually falls.
Drawing analogies to football matches of the world championship, which coincided with the crisis, we should expect the ruble to continue to fall after the end of the 2018 World Cup.
Well, before the World Cup 2022 - we will buy the Qatari Real (In 2022, the World Cup will be held in Qatar) 🙂.