Trading does not exist in a bubble, even if it can sometimes feel that way when you are working on your trading charts and determining which options you should go for; which ones make sense for you to trade. There are, in fact, many events that impact forex trading out in the world, and it makes sense to pay attention to them as what is happening around you could well mean that you need to change the direction you were heading in, and could save you money in the long term, even if it means not trading when you would normally have done so. So what exactly can have this impact on forex trading? Here are some examples.
Politics
Even if you don’t find politics particularly interesting, politics is one of the areas that can impact forex trading in a major way. If the currency of a country is affected by an election, or by political decisions that are being made by its government, then that will clearly have an impact on any forex trading you might be thinking about entering into. The markets can easily and quickly become extremely volatile, and a normally simple and stable trade could deteriorate before you notice. It’s best to check what is happening politically in the country your forex trading pairs belong to before committing to a trade.
Macroeconomic Data
When you are trading forex, understanding macroeconomic data is essential – this is one of the most important elements when it comes to forex trading because it relates to the strength (or otherwise) of the economy. There are a variety of factors that combine to create the overall macroeconomic data for a currency. These include:
Interest Rates
If there is a higher interest rate then the currency will often appreciate. A falling interest rate can mean a depreciating currency. It is crucial to compare interest rates for different countries when looking at your potential trades and creating your trading charts.
Inflation Rates
There are two major inflation rate indicators to watch out for. These are the Consumer Price Index (CPI) and the Producer Price Index (PPI). The CPI is the average price of consumer goods, whereas the PPI shows the average prices for domestic output. Both of these together should give you a good idea of what is happening with regards to inflation in a particular country, and therefore what the currency will look like. Low inflation often means that interest rates are cut which makes a currency weaker, for example.
Employment Rates
The employment rate in a country is an indicator of how the economy in that country is faring. More employment tends to suggest a stronger economy, and therefore a stronger currency, and vice versa.
Sentiment Surveys
Sentiment surveys offer a rough idea of market expectations. Consumer sentiment, for example, offers an indication of future consumer spending. If there is more spending predicted then it is assumed that the economy is growing and the currency becomes stronger.
Gross Domestic Product
More often known as GDP, gross domestic product offers a picture of the overall growth of the economy of any country, and is something that forex traders should pay close attention to. GDP is usually determined by a combination of different factors including employment figures, housing, and inflation.
Conclusion
As evidenced above, there are a number of different events that impact forex trading. This is why the trader must learn to notice these events and pay attention to what is happening in the world at large, as well as in the countries that they are trading currencies from. Having a wider knowledge of the world means that traders are able to make more informed, more successful, trading decisions, and are able to steer clear of potential losses more easily. For more free, easy trading tips visit The Lazy Trader or free online trading and investing resources such as Bootstrap Business or Investopedia.com
