I'm quite surprised that no one has write about the correlation between FIFA World Cup and the Forex Exchange Market as it's the biggest sport event of the year. Usually the host countries benefit most not only by the infrastructure investment in the years prior to the tournament, but also by the inflow in The Brazilian real, which is the Brasil national currency.

You have to convert your local currency to Brazilian Real in order to pay for the goods and services if you visit Brasil for the World Cup.

The start of the World Cup will not only benefit the Brazilian Real exchange rate but also will lead to a slump in liquidity in all Latin American currencies.

Other "phenomens" observed during the World Cup is that volume and liquidity usually dry out as many traders are taking time away from their desk to watch the matches. But due the difference in time zone this is not affecting the major sessions(London) but you can see that after London session close out, although the volume during that time is low, now with the World Cup it's even lower.

Recently Goldman Sachs has issued an research about the World Cup and Economics 2014, which you can read it Here

Historically speaking if we compare developed countries against emerging countries we can see that the World Cup has been won 9 times by an emerging country and 10 times by a developed country. The question we face is which one will be the winner this time between: Developed Country vs Emerging Country? At the beginning of this World Cup tournament the countries that qualified for this World Cup could have been classify them as 18 emerging countries and 14 developed countries.


Figure 1. Performance from 1st of Jan 2014 to 11th April 2014(in USD)

Here is an interesting study that presents trading strategies associated with the World Cup:

Currency carry trades: a popular strategy which is relatively easy to implement and which has proven profitable. We test the strategy by going long a basket of emerging market currencies of the qualifying countries (which are normally higher yielding due to higher inflation, economic risks, etc.) funded by a basket of developed market currencies of the qualifying countries (which are normally lower yielding, which has been exacerbated by quantitative easing).

Ahead of the upcoming cup, the carry total return points to a loss on the EM carry trade so far (-2.8% to the 11th of April). On this basis, I predict that an EM team will win the cup in Brazil.(see Figure 1)


Now please tell me which is your favorite team to win the World Cup 2014 based on the currency performance?

Best Regards,
Daytrader21
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