Those who trade with binary options should not only follow economical news. No matter which underlying asset, political news often have an important effect and influence courses in one or the other direction. This applies to foreign exchanges as well as to resources and indices and even the courses of single shares can rise or fall after certain news. One of the potentially most important cases is the so called “fiscal cliff” in the USA.
Conflicts between the parties should be avoided
After the presidential election in the United States just have ended, the next important development that may have a great impact on all markets worldwide is already present. We are talking about the fiscal cliff. This word describes the effects that laws could have on the amount of taxes, expenses and the budget deficit if they are not changed in time. As a result, the entry into force of these laws would mean that the USA would abruptly clearly reduce their expenses from January on, as the taxes would clearly rise since a few benefits would drop out.
In 2011, this law package was passed. The democrats’ and republicans’ aim was to find a compromise on fiscal policy that should become more likely due to the threats. At last, both parties could lose something: While the Republicans strictly deny higher taxes the democrats resist to budget restrictions.
The drastic changes in fiscal policy are considered as the “fiscal cliff”. The USA risk to fall from this fiscal cliff unless -until the end of December- a political agreement about the alternatives is achieved.
It is not possible to exactly predict which effects would arise if the laws really are passed in January. Probably the sudden restrictions of the expenses would lead to a recession in the US economy that is not really vivid anyway, which could dramatically affect the market worldwide.
Three scenarios are possible
Many experts consider the conflict between the parties about the fiscal policy of the United States kind of worried. The boss of the IWF, Christine Lagarde, has warned both parties of the potential consequences. The conflict means a “real danger” that could affect the whole world economy.
All in all, 3 scenarios can be identified that could be possible within the next weeks.
The most probable option is that an agreement is achieved which the Dollar and the stock markets could profit of. Due to the especially export-orientated German economy the DAX will probably have a positive effect in Europe.
The second scenario is an adjourned game where the president and the congress can only agree on
a certain minimal compromise. The debt limits could be raised. In this case the markets should not register negative consequences but great bull movements are neither expected.
If indeed no agreement is achieved a recession in the USA would especially affect China because of particularly depending on the export of the USA. This would also mean that the worldwide economic growth is threatened so that it could lead to tumultuous price movements at the foreign exchange and stock markets.