Since 2000, the Forex scene has become less crowded. Many traders’ favorite financial vehicles have been absorbed into the new European currency, the euro. Gone are the days when one could trade pesos like the Spanish Peseta, German Mark, Belgian Franc, Italian Lira and many others. Or are?
Since the disintegration of the former Soviet bloc, the currencies of countries previously hiding behind the Iron Curtain have become viable, free-floating financial vehicles. in eastern
Europe and the Baltic States are nine countries whose currencies are outside the euro zone. In the minds of many traders, that is where the opportunities are.
We are talking about states that are members of the European Union, such as Poland, Hungary, Slovakia, the Czech Republic, Estonia, Lithuania, Latvia and some others. Their economies are industrialized, political systems are democratic, and after decades of stagnation under communist rule they are going through a period of great economic change. They are becoming more and more like western countries.
Many brokers offer some of these currencies to trade. The Polish Zloty, Czech Koruna and Hungarian Forint are available and enjoying a steady increase in volume. Due to the economic reforms instituted in their respective countries, they have seen an increase in value against the dollar and euro. They already have more than ten years of history (data), which makes them suitable for analysis. Spreads remain relatively wide and are not very active outside of European trading hours. They may not be the best candidates for day trading.
Longer term positions, using daily or weekly charts, however, can be quite rewarding. There are many reasons. All countries that join the European Union also agree to join a common currency. Before that can happen, new members must meet strict entry criteria. That means their tax policies need to be constantly improved, and once those membership requirements are met, they need to be maintained for a few years as well. Public spending, debt and inflation must meet certain targets. All of that is likely to be rewarded with currency appreciation. When the conversion date occurs, the best thing for those countries will be to see their strong currencies. Everyone wants salaries and pensions to be as close as possible to the European average.
When they join the euro zone, these currencies will disappear. But it won’t happen very soon. Hungary will not meet the targets before 2016. In Poland, this whole issue will be put to a public referendum. Given a negative result of similar votes in Sweden and Denmark, the Polish zloty could last a long time. Since the EU Council has already set a precedent for member states to hold their currencies, who knows what will happen?
No matter what happens a few years from now, fundamentals strongly suggest Eastern European currencies are on track to appreciate. They should exist for at least another decade. Traders with a long view and a taste for the exotic should definitely give them a second look and reap the rewards.