Trading the financial markets in June – what to expect this month?

While trading during the summer months often involves less market volatility since the main seasonal trends don’t apply, there are still many factors that could trigger uncertainty this month. Here are the 3 main events traders should be monitoring.

The Brexit situation

After a final rejection of her withdrawal plan by the British parliament, Theresa May threw in the towel, unable to find a solution to the Brexit crisis. She resigned as head of the Conservative party and will soon step down as prime minister. The battle to become her successor is already underway, with Boris Johnson leading the way. By the end of July, the United Kingdom should have a new leader.

The world is now wondering what new leadership will mean in terms of delivering Brexit – currently scheduled for October 31st – and for the British economy. The International Monetary Fund (IMF), for example, is hugely concerned over the potential fallout from a hard Brexit and is expected to cut its global growth forecasts if the situation doesn’t improve.

The trade war between China and the US

Limiting China’s growing economic power is clearly a priority for Donald Trump, who hasn’t hesitated to significantly increase taxes on Chinese products imported into the United States. This trade war between the world’s two most powerful economies is one of the most important current geopolitical situations – one that can influence all the global financial markets.

As a consequence of this conflict, the US trade deficit with China reached its lowest level in 15 months in April. But both the American and Chinese economies are increasingly suffering from the negative effects of this dispute. Last week, the IMF lowered its growth forecasts for the Chinese economy to 6.2% in 2019 and 6.0% in 2020 because of the potential for further escalation.

The Federal Reserve monetary policy

On the same day, the Federal Reserve also mentioned the “downside risk” of Trump’s trade policy and its potential negative impact on the American economy. The Fed is now ready to cut interest rates if needed, to support the US economy.

The probability of a rate cut at the next FOMC meeting (June 18th and 19th) – or the following one at the end of July – is strongly increasing. The trade war with China is clearly at the center of concerns. Moreover, new taxes on Chinese products could weigh heavily on American growth.

How to use this information in your trading strategy

The 3 situations described above represent major threats to global growth. They will likely impact the financial markets, especially the currency market, which reacts strongly to lower growth and changes in monetary policies.

For this reason, it’s crucial to monitor the economic calendar during your trading sessions. This will let you know when to expect a volatility spike, enabling you to make more informed decisions as you seek to protect and grow your trading capital.

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About the Author: Paul Petersen