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How the Swine Flu is Affecting the Peso, the Dollar and Yen!
By Sean Hyman | April 28, 2009
sterday as I watched the media breed fear into the public, I also saw my charts going nuts. The “Swine Flu fear” was spreading from people, to the financial markets.
Fist I heard about hog and pork belly futures taking a blood bath in the trading pits due to the swine flu. (Commodity traders were scared that while this is all going on that the public would eat less pork than they otherwise would.)
Then later on, the stock market cranked up and I saw Smithfield Foods (SFD) gap down and lose over 12% in a single day. Tyson Foods (TSN) gapped down too and traded down almost 9% on the day too.
It was then that I switched over to my currency screens and brought up the Mexican peso (USD/MXN). The peso was getting slaughtered over the swine flu. Check out the daily chart below.
It not only broke the downtrend line as the peso dove, but it gapped noticeably higher on the daily chart and soared over 5.25% on the day.
But why? What’s the big deal about this flu and why should it affect a currency?
Here’s why!
Here’s how the peso gets punished for the “Swine Flu”!
The fear that is spreading from
Swine flu is common. It’s common in pigs and this same type of flu is even common in birds too. We even had a bout of swine flu back in the 1970s here in the
However, the problem right now is that there is no vaccine currently and it takes at least 3-6 months to make a vaccine. Meanwhile, people frequenting
The Mexican government has even talked about shutting down bars, churches and other public gathering spots in order to help stem the spread of this flu.
So the scare will hurt
Matter of fact, even once the “coast is clear” again one day, I’d bet that tourists will still avoid the place for a while longer just to be on the safe side.
Also, since there has been an increase in “the sick” in
Therefore, it’s not just a health issue (which is most important) but it’s also a financial issue. And a financial issue is also a sentiment issue. After all, would you buy the peso knowing that all of this is brewing in their country? Of course not, and neither will millions of other traders around the world…hence the rise of the USD/MXN pair.
The peso gets punished while the buck and the yen catch a break!
So money is flowing out of the peso at a rapid rate and is fleeing to the U.S. dollar and the yen as the market becomes “risk adverse” yet again over this epidemic that investors feel could become a pandemic.
So expect more money to flow out of the peso until this problem gets reigned in and expect money to flow towards the greenback which will continue to crush the USD/MXN pair.
Should this flu virus start spreading to other countries rapidly, then you can expect the yen to be a huge beneficiary since the yen seems to thrive off of fear these days. The dollar will benefit as a close runner up for the very same reasons.
Therefore, keep an eye on how bad this “swine flu” gets in the media and in “real life” as this story continues to unfold.
Sean Hyman
www.forextradingblog.com
Click on the chart to enlarge it.
Tags: blog, buck, charts, commodities, commodity, course, currencies, currency, dollar, dow, downtrend, fear, financial, flu, forex, forextrading, fx, greenback, hog, home, invest, investor, JPY, market, Mexico, money, MXN, pair, peso, pig, pork bellies, rate, Sean Hyman, sentiment, smithfield foods, spot, stock, swine, swine flu, time, trade, trader, tyson, U.S., USD, yen
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