Global Recession: The Next BIG Trading Opportunity

An economic downturn can be a trader's and investor's dream due to cheap stocks, increased volatility, and money-making opportunities. Obviously, no one who is kind-hearted and compassionate wants to see businesses fail, people lose their employment, and savings be lost. Good traders and investors don't wish or pray for a recession. However, good traders prepare for potential recessions and see the opportunity they create when they come.

I believe one of the best trading opportunities over the next 12 months is a recessionary trade. But how likely is one, what could cause it, and how can traders profit from it? These are the questions I've been considering for the last few weeks. Below are my thoughts and research.

Recession Factor One: A Rise in Oil Prices

The US-Iran War has re-ignited fears of a potential global recession. This is primarily due to increased oil prices and instability in the Middle East.

Oil prices recently hit 4-year highs, due to the US-Iran War. For oil traders who caught the move, they're laughing. For the rest of us, higher oil prices mean the cost-of-living crisis continues due to higher inflation, which may be a catalyst in creating an economic downturn.

Why are oil prices higher?

Iran produces 3% to 4% of the world's oil, but Iran not producing oil is not the cause for concern. It is the closure of the Strait of Hormuz. An average of 20-21 million barrels of petroleum and oil products passed through the Strait daily. That's 20%-25% of the world's maritime oil trade!

Financial markets, including oil markets, are driven by supply and demand. A lack of supply (or even the fear of one) increases prices. The Strait of Hormuz being closed, or allowing only limited vessels through, affects the oil supply. Hence, the increase in oil prices.

Historical Crude Oil Prices

How do higher oil prices impact economies?

Oil prices impact everything. The transportation of goods and services, the manufacturing of goods, aviation, heating homes and businesses, travelling for business and leisure, and other logistics. In other words, higher oil prices mean higher inflation across the board.

Can higher oil prices cause a recession?

Historically, higher oil prices have been a significant contributing factor to recessions. This includes the recessions of 70's and early 90's. Some economists even argue that the global recession of 2007-2009, while primarily a banking crisis, was heavily driven by the $150 surge in oil prices.

Oil Prices and Recession

Summary

Higher oil prices mean higher inflation. If inflation is higher, central banks are more likely to raise interest rates, which typically has a negative impact on economic growth.

For many households, the current cost-of-living crisis has stretched their finances enough. If inflation starts climbing again, this could be enough to cause households to default on debts. Another catalyst that leads to recession.

Recession Factor Two: Stagflation is here to stay

I love fundamental analysis. If you've seen some of my videos, you may be familiar with my fundamental analysis spreadsheet, which reviews current geopolitical events and economic indicators to form currency bias.

In recent years, I have come to label a few economies as 'stagflation'. This typically means a country is facing high inflation and low economic growth, which is a headache for central banks. However, I currently have 7 of the world's economies labelled with stagflation or potential stagflation. This is a major change. Stagflation is becoming the new norm.

Why is stagflation a problem?

Stagflation means a country is dealing with high inflation and low economic growth. This can place central banks in a difficult position. On one hand, interest rates need to be hiked to tackle the high (and potentially rising) inflation. On the other hand, interest rates need to be cut to stimulate economic growth. Quite the predicament!

So, what do central banks do in such a scenario?

Why could stagflation lead to recession?

When push comes to shove, high and rising inflation will take priority over economic growth. This means central banks will start rate hiking cycles to control and bring down inflation, no matter the cost to economic growth.

When growth is already very low or non-existent - as is the current case with many countries - what will a series of rate hikes do? It will lead to contraction, or in other words, recession. In my view, many of the world's economies are only a few rate hikes away from recession.

Summary

Many countries already have low to no economic growth. A new streak of rate hikes could be negative for growth. Meaning that economic growth could turn negative, i.e., countries could enter recession.

Recession Factor Three: The Rise of AI

Whether you love, hate, or are indifferent to AI, the facts are that it's having a negative impact on the job and labour markets, especially amongst younger people.

UK Youth Unemployment

Is AI impacting the labour market?

Absolutely. Businesses and individuals are relying on AI for a variety of tasks they once paid people to do. This includes customer service, finance, quality control, marketing and content generation, analysis, cybersecurity, scriptwriting, video editing, email management, coding, travel planning, and HR. Some individuals are even using AI for emotional support and personal growth.

Goldman Sachs estimates 300 million jobs are at risk due to AI automation.

But what do the numbers say? Is unemployment rising? The answer is yes, especially amongst younger people and those starting their career path. However, although the figures are high compared to recent years, they're not at a level of great concern.

Does higher unemployment cause recessions?

Yes. Higher unemployment means more people have less money. Having less money means less spending, which negatively affects the economy.

Summary

Although unemployment is not currently at recessionary levels, the rise in unemployment may be one of the factors causing a recession.

Recession Factor Four: A Rise in Uncertainty

Trump has caused global uncertainty. His second term has included threats to invade a European nation, the implementation of global tariffs, starting a war with Iran, and regular inappropriateness. Although none of these items inherently start a recession, they have, and will, cause market uncertainty.

European nations deciding to sell US government bonds, a US-Europe war, the US leaving NATO, China invading Taiwan, the Trump administration re-instating tariffs, or Trump refusing to step down as the US president are all possible realities that were unthinkable only a few years ago.

This uncertainty can lead to reduced economic investment, production, and activity. Maybe oil prices will return to lower levels. However, is there enough uncertainty about Trump to significantly stunt economic growth? This has not yet been the case. But combined with possible rising youth unemployment, higher oil prices, and interest rate hikes, Trump uncertainty could contribute to a recession.

Recession: What are the Experts saying?

They are saying a lot. Here are some useful links:

Recession Warnings

The Bank of England states that stock markets are too high and are set to fall: https://www.bbc.co.uk/news/articles/c75kp1y43lgo

The IMF warns that the US-Iran war could trigger a global recession: https://www.theguardian.com/business/2026/apr/14/iran-war-global-recession-imf-uk-growth-forecasts-oil-prices

Reuters states that recession risk is rising: https://www.reuters.com/business/germany-recession-risk-jumps-iran-war-lifts-energy-prices-imk-says-2026-04-23/

The Independent. 250,000 may lose their jobs in the UK: https://www.independent.co.uk/news/uk/politics/iran-war-recession-uk-economy-b2960583.html

Growth and Resilience

UN Trade & Development. Steady growth and a resilient global economy: https://unctad.org/publication/world-economic-situation-and-prospects-2026

Deloitte. Growth continues to be forecast: https://www.deloitte.com/us/en/insights/topics/economy/us-economic-forecast/united-states-outlook-analysis.html

Recession: How can we make money from it?

I'm assuming this is why most of you are here. How do we, as traders, make money from a recession? I've broken my thoughts into 3 market types: Stocks (equities), Currencies (Forex), and Commodities (derivatives).

Equities

During times of uncertainty, including recessions, money moves out of stocks and into safe-haven assets such as bonds and safe-haven currencies like the dollar, Swiss franc, and yen. This causes global stock markets to fall. The severity of the fall depends on the depth of the recession. However, expect a bearish stock market and increased volatility.

There are primarily 3 ways to make money in a bearish stock market:

• Short-selling stocks or stock indices

• Buying stocks that weather recessions

• Buying stocks or ETFs at reduced prices.

Short-selling stocks or stock indices can lead to quick and significant gains, but predicting when a recession will start and how markets will react is extremely challenging. Very few can time short-selling bearish opportunities well.

Stocks that perform well during recessions have historically been from the healthcare, consumer staples, utilities, and budget retail industries. Companies exposed to gold and other precious metals can also perform well amid the recessionary rise in metal prices.

Waiting for a significant dip and buying stocks at reduced prices can be very rewarding for investors. The key is to choose companies that will survive the recession, rather than those that will stop trading or struggle to financially recover.

Currencies

During times of uncertainty, cash moves to safe-haven currencies. Historically, these have been the CHF, JPY, and USD. This means that non-safe-haven currencies such as the AUD, CAD, EUR, and GBP tend to underperform.

Currency pairs that have historically performed the best during recessions are:

• AUDJPY (short)

• CADJPY (short)

• EURJPY (short)

• GBPJPY (short)

• AUDUSD (short)

• EURUSD (short)

• GBPUSD (short)

• AUDCHF (short)

• EURCHF (short)

• GBPCHF (short)

Commodities

Commodities and stocks can be negatively correlated. Meaning that when stocks fall, commodities climb, and when stocks climb, commodities fall. However, this is not a permanent relationship, and the negative correlation tends to work best when markets are being driven by inflation.

Historically, the commodities that have outperformed during times of recession are:

• Gold (long)

• Silver (long)

• Other precious metals (long)

Recession: How will I trade it?

I am an active trader and investor. My current plan is to buy yen, rather than Swiss francs or dollars. However, I think all 3 currencies may perform well if a recession hits.

My yen preference is primarily based on the yen's strength during past recessions and the Bank of Japan's keen interest in strengthening it.

Trump's unpredictability turns me off buying dollars (USD). Switzerland's edging toward negative interest rates and the SNB's desire to weaken the franc turn me off from buying Swiss francs (CHF). However, Japan's reliance on energy imports doesn't paint a perfect picture for buying the yen, so it's not a clear choice.

Yen Strength in Previous Recessions

Historically, the Japanese yen has performed very well during recessions. Especially against non-safe-haven currencies such as the euro or pound.

I love combining fundamental and technical analysis. A few currency pairs are looking more attractive to me than others:

• EURJPY is at a key monthly horizontal resistance and is currently stalling

• If the yen has further to weaken, then CADJPY could be an interesting chart as the price is nearing a key horizontal resistance

• Another option is to buy the yen index, which is nearing weekly range support and multi-decade lows.

EURJPY Monthly Chart

CADJPY Monthly Chart

JXY Price Chart

Investing in ETFs

I will also invest in the US, UK, and other stock markets if prices drop significantly to desirable levels.

I will be buying individual companies, selected based on the severity of the recession and the industries it affects.

I invest in equities through ETFs. Namely, the TDGB, SPY, VUSA, IWM, and VEA. All of these provide dividends and exposure to global stock markets.

Areas of Technical Interest on the S&P500

Things to Consider

#1 My analysis could be incorrect. Despite how confident I may sound in this article, I am often wrong. Predicting the markets is not easy. Predicting a recession is even harder. My analysis could be totally incorrect. I've been wrong about recessions before.

#2 The dollar may continue to be king. Despite my concerns about Trump's America, the dollar could remain king, and I may regret not being more heavy on the dollar.

#3 Japan's energy imports. I understand the concerns over Japan being severely impacted by energy prices. However, I'm not concerned enough about them to consider the yen losing its status as a safe haven in a recession. Once again, I could be totally wrong about this, and my JPY longs may result in losses.

#4 The US midterms. The outcome of the US midterms (November 2026) may increase or reduce uncertainty about Trump.

#5 Combine fundamentals with technicals. Although I have a strong fundamental bias to buy yen and close my stock positions, I must wait for the technicals to suggest that the yen is strengthening. Currently, the yen is weakening. Currencies against the yen are strongly uptrending, and there is very little technical evidence of downside in AUDJPY, CADJPY, EURJPY, GBPJPY, or USDJPY.

#6 The Bank of Japan may intervene before recessionary yen moves. The BOJ is edging toward yen intervention. I believe we may see moves in favour of the yen due to intervention before any evidence of recessionary trades. The intervention move will be strong and sharp.

Summary

Let's see what happens. I believe there is enough to suggest that a recession is on the cards, even if it's minor, or that the market simply fears one. Even the fear of one could be enough to trigger market movement and create recessionary trading opportunities.

Good luck!

Learn more about me: https://www.actualforextrading.com/

Email me: samuel@love-the-pips.com

DISCLAIMER

*There is a very high degree of risk involved in trading. Past results are not indicative of future returns. Samuel Morton, Actual Forex Trading, SM Web Capital, and all individuals affiliated with this site assume no responsibilities for your trading and investment results. The indicators, strategies, columns, articles and all other features are for educational purposes only and should not be construed as investment advice. Spread betting, Forex trading, and CFDs are not suitable for pension building or income. They are high risk and you will lose money, possibly more than your deposit.