How
to bet on a recession
How to bet on a recession….Or the recovery.
July was a big month for
global stock markets, rallying from the lows from the first day of the
month. The European sovereign crisis is no longer front page news and
that particular crisis appears to have passed for now. However in the last
week, stock markets have paused again as employment growth and economic
growth in the US show few signs of acceleration. If you wanted to bet on
a recovery, what would be the best way of doing this? Similarly, if you
thought another recession was on the cards, how could you position
yourself? The forex markets could
be a good way to play the recession/recovery. During the credit crunch
there was one currency pair that acted as a clear bellwether for the
global economy and that was the AUD/JPY. Not only does the
Aussie dollar rise thanks to higher demand and commodities, it also
forms part of a popular carry trade whereby speculators buy Aussie
dollars and borrow in yen to pocket the difference. As confidence rises,
this carry trade boosts the AUD/JPY, but if things turn sour,
the pair can violently reverse. This potentially makes the AUD/JPY
a good way to play the recession/recovery because it may accentuate any
trends in the underlying global economy. As you can see the
AUD/JPY has been closely correlated with the major S&P500 stock
index over the last few months.
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<![if !supportLineBreakNewLine]>
<![endif]> How to bet on a
recovery: If you think the global
economy will recover, a good bet might be to predict that the AUD/JPY will be
above 82.00 in 122 days time. This could return 175% if
successful.
Click To View Full-size image
How to bet on a
recession: If you think the global
economy will falter and slip back into recession, a good bet might be
to predict that the AUD/JPY will be below 74.00 in
122 days time. This could return 153% if successful. | 
