Overall economic health can change quickly based on current events and new information. However, most of the best forex traders are highly disciplined and stick to a set of trading rules. Let's take a closer look at some of the factors that influence an economy's standing and drive changes in the value of its currency. Currency markets are incredibly complex, so no specific set of factors will ever completely determine exchange rates.
Expect the unexpected. The global capital markets are perhaps the most visible indicators of an economy's health. It is easy to notice the release of public information in capital markets. There is a steady flow of media coverage and up-to-the-second information on the dealings of corporations, institutions, and government entities.
A rally or sell-off of securities originating from one country or another should be a clear signal that the future outlook for that economy has changed. Similarly, many economies are sector-driven, such as Canada's commodity-based market. The Canadian dollar is heavily correlated with commodities, such as crude oil and metals. Commodity traders, like forex traders, rely heavily on economic data for their trades. In many cases, the same data will have a direct impact on both markets.
Trading currency and commodity correlations is a fascinating topic. The bond markets are similarly critical to what is happening in the forex market since both fixed-income securities and currencies rely heavily on interest rates. Treasury price fluctuations are a factor in the movements of exchange rates, which means that a change in yields will directly affect currency values. Therefore, it is essential to understand bonds , and especially government bonds , to excel as a forex trader. Another critical factor is the balance of trade between nations.
The trade balance serves as a proxy for the relative demand for goods from a country. A nation with products or services that are in high demand internationally will typically see an appreciation of its currency. For example, buyers must convert their money into Australian dollars if they want to purchase goods from Australia.
The increased demand for the Australian dollar will put upward pressure on its value. On the other hand, countries with large trade deficits are net buyers of international goods. More of their currency is sold to purchase the currency of other nations to pay for foreign goods. This type of situation is likely to have a negative impact on the value of an importing country's currency.
The political landscape plays a vital role in the overall outlook for a country and, consequently, the perceived value of its currency. Forex traders are constantly monitoring political news and events to anticipate changes in the economic policies of national governments. These can include shifts in government spending and adjustments in regulations imposed on particular sectors or industries.
Changes in rules regarding margin or leverage available to traders often have a dramatic impact on markets. Elections with uncertain outcomes are always significant events for currency markets. Exchange rates often react favorably to wins by pro-growth or fiscally responsible parties. A referendum can also have a substantial impact on exchange rates.
A good example is the Brexit vote, which had a dramatic effect on the British pound when the U. The fiscal and monetary policies of any government are the most critical factors in its economic decision making. Central bank decisions that impact interest rates are keenly watched by the forex market for any changes in key rates or the future outlook of policymakers. Economic reports are the backbone of a forex trader's playbook.
Maintaining an economic report calendar is crucial to staying current in this fast-paced marketplace. Gross domestic product GDP may be the most visible economic statistic, as it is the baseline of a country's economic performance and strength. GDP measures the total output of goods and services produced within an economy. However, it is crucial to remember that GDP is a lagging indicator. That means it reports on events and trends that have already occurred.
Inflation is also a significant indicator, as it sends a signal of increasing price levels and falling purchasing power. Shephard, Rosa, Carlo, Per A. Engle, Robert F, Full references including those not matched with items on IDEAS Most related items These are the items that most often cite the same works as this one and are cited by the same works as this one.
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FRED data. My bibliography Save this article. Scheduled macroeconomic news announcements and Forex volatility forecasting. Registered: Tomas Plihal. In the world of finance, the volatility of asset prices plays a crucial role, for example, in portfolio optimization or the valuation of derivatives. Macroeconomic news announcements are among the most important factors that influence volatility in financial markets. Realized volatility is analysed on a daily basis, and it is also decomposed into continuous and jump components that are analysed separately.
|Forex signals programs||More of their currency is sold to purchase the currency of other nations to pay for foreign goods. In particular no advice is intended to be provided or to be relied on as provided nor endorsed by any Saxo Bank Group entity; nor is it to be construed as solicitation or an incentive provided to subscribe for or sell or purchase any financial instrument. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. This content is not intended to and does not change or expand on the execution-only service. Trading currency and commodity correlations is a fascinating topic.|
|Macroeconomic news on forex||Partner Links. Meddahi, N. The global capital markets are perhaps the most visible indicators of an economy's health. A good example is the Brexit vote, which had a dramatic effect on the British pound when the U. Investopedia is part of the Dotdash Meredith publishing family. This type of situation is likely to have a negative impact on the value of an importing country's currency. The dollar's weakening trend will last at least another year, longer than previously expected, according to a majority of foreign exchange strategists polled by Reuters who cited a hunt for yields in emerging market currencies as the main reason.|
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