Geopolitics: Wars, Elections, Trade Wars
Unpredictable events that create the biggest moves. You can't predict them, but you can prepare.
Researched and written by Laurent Why Geopolitics Matters
Technical and economic analysis work in normal conditions. Geopolitical events can override everything. When Russia invaded Ukraine in February 2022, no chart pattern or RSI reading warned traders. The ruble collapsed 40% in days. European currencies sold off on energy security fears. Safe havens surged.
You cannot predict these events. But you can understand how markets react to them, which lets you respond rather than panic.
The Safe-Haven Reflex
When uncertainty spikes, capital flows to perceived safety:
- US Dollar (USD): The world's reserve currency. In a crisis, everyone wants dollars because debt is denominated in dollars and US Treasury bonds are the ultimate safe asset.
- Japanese Yen (JPY): Strengthens during crises because trillions of yen-funded carry trades unwind simultaneously. Japan is also a major net creditor nation.
- Swiss Franc (CHF): Switzerland's political neutrality, strong banking system, and low debt make CHF a traditional safe haven.
- Gold (XAU): Not a currency, but trades like one. Gold rises during uncertainty as a store of value.
On the other side, high-beta currencies (AUD, NZD, emerging markets) typically sell off during geopolitical shocks because investors flee risk.
Elections and Political Risk
Elections create uncertainty, and markets dislike uncertainty. The closer and more contested the election, the more volatile the currency. Key impacts:
- Policy uncertainty: Different candidates mean different economic policies (tax rates, regulation, trade deals).
- Emerging markets: Elections in countries like Turkey, Brazil, South Africa can cause 5-10% currency moves if the outcome surprises markets.
- Developed markets: US, UK, EU elections cause smaller but significant moves. Brexit referendum moved GBP/USD over 1,800 pips in a single night.
Trade Wars and Tariffs
When countries impose tariffs on each other's goods, it directly impacts their currencies. Tariffs raise import costs, affecting inflation and economic growth. The US-China trade war (2018-2020) caused significant moves in USD/CNH, AUD/USD (Australia depends on Chinese demand), and emerging Asian currencies. The broad US tariff round of 2025 had a similar effect, triggering sharp swings across USD pairs and renewed safe-haven flows, a reminder that trade policy remains a live driver of currency markets.
How to Prepare (Not Predict)
- Keep position sizes smaller when tensions are elevated.
- Use wider stops to survive initial volatility spikes.
- Know your exposure: if you're long AUD/JPY and a crisis hits, you're on the wrong side of every safe-haven flow.
- Have a plan: "If X happens, I will do Y." Not: "If X happens, I'll figure it out then."
- Accept: some events will cause losses regardless of your preparation. That's part of trading.
Key Takeaways
- • Geopolitical shocks cause immediate safe-haven flows: USD, JPY, CHF, and gold strengthen.
- • Elections create uncertainty, which increases volatility, especially in emerging market currencies.
- • Trade wars directly impact the currencies of involved countries.
- • You can't predict geopolitical events, but having a smaller position book and wider stops reduces the damage.