The relationship between global financial markets are known to all investors involved in the trade. Part of the traders who trade the news strategy takes into account the enormous impact of the financial and macroeconomic indicators in the global trading platform.
The Forex market is no exception, also dependent on economic and political factors. News trading, despite its apparent simplicity, requires a trader a matter of understanding what is happening. Knowledge of the specific nuances help maintain a profitable trade, avoiding major financial losses.
Macroeconomic data and reports
This is the most important economic indicators of different countries to help investors and analysts to make forecasts of market situations. Macro statistics gives the ability to drill down important aspects of the economic situation of any country and region. The most significant indicators include:
- information about the level of employment. Here the qualitative assessment are the number of employed and unemployed.
- the volume of production. The figure shows the state of the national economy, namely the rate of change of the output of industrial production and communal services;
- gross domestic product (GDP). Reflects the market value of the total number of services and products produced per year in all sectors of the economy in a particular country;
- inflation — change in the price of goods, leading to a period of money.
Macroeconomic data and reports constitute one of the main tools of fundamental analysis and are an indicator of the strength of the national currency. In this case, the principle: a stronger economy strengthens the currency.
From the macroeconomic data depend on all trade types — medium and long term. Before the news and during the broadcast the volatility of currency pairs is increased by several times. Unpredictable movements of the price trend “eat” a lot of novice traders orders. Incorrectly placed orders for the purchase or sale of assets may at this time be closed by Stop Loss, thereby causing investors substantial losses. Therefore, during trading on the news should be particularly careful.
Perhaps the most significant effect on the volatility of major currency pairs has GDP of the United States of America. Being the most referenced and discussed figure, he almost always has a direct impact on the movement of all markets. It is no coincidence, because the U.S. dollar is recognized as a common world currency number one.
For example, after the announcement 31.07.2008 results GDP (real change was 1.9% instead of the projected 2.3 percent) American made a sharp jump in pairs with other currencies.
This factor is also important in trading because any investor, political risk is a real threat of sharp reduction of profit and the emergence of large losses due to the policy of the state on whose territory the hosted business.
The reason may be the change of the political course of the state or the composition of the government. But if for some investors, these changes present a danger for others is a real possibility of earnings. Most entrepreneurs invest in the economy stable and strong countries with a stable political system. The instability of the political system, by contrast, breeds mistrust to the national currency and causes investors to move their funds in the currency more reliable States.
For example, the events of 11.09.2001 on this day the cardinal did not affect the trend movements of the major currency pairs.
Subsequently, however, as can be seen on schedule a EURUSD date 11.09.2001 was the beginning of a bull market, the European single currency. The us dollar against the Euro became cheaper.
In addition, there are several other examples of the influence of political events on currency market:
- foreign policy tensions between countries. The geopolitical conflict between Ukraine and Russia caused a significant outflow of capital from both States and, as a consequence, the fall of both currencies;
- the referendum on the independence of individual regions of different countries. Such political event of the decision of the independence of Scotland took place in September 2014. The result was pressure on the British pound which lasted several months.
Monetary policy of the countries
One of the most strong levers of the economy is a monetary policy that takes the country’s Central Bank, affecting the state of the credit and monetary circulation. Monetary and credit relations, except for the influence on economic developments within the state, affecting its trade and balance of payments. The Forex monetary policy of countries is fundamental.
Fundamental analysis always reflects the growth rate of the national currency, when the interest rate increases. This is obvious because the increase in the interest rate of a particular state unambiguously increases the income of any investor that invested in the country’s economy. Such investments are considered risk-free.
Sometimes you can see the divergence (divergence) monetary policies. An example is the statement of the Federal reserve system of the United States of America in 2014 about tightening its monetary policy. At the same time, the ECB announced easing of the set of economic activities.
On the chart, EURUSD observed prolonged decline of the asset during the second half of 2014 as a result of the divergence of the two monetary policies.
There is no doubt that to ignore the news events on the Forex market can not, regardless of whether the trader committed to trading the news or her opponent. Important trading decisions should be made with the mandatory posting of this information.