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Tuesday, April 08, 2008

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How To Identify The Major Economic Factors That Are Important In Forex Trading

By Greg Hall

Unlike other trading exchanges such as the NYSE, NASDAQ, and other major stock trading organizations, trading in the foreign exchange market can be extremely volatile on a day-to-day basis. It is crucial that anyone who is going to invest in the Forex market be as informed as possible on the global economic news of the day that influences the market. There are numerous economic factors that influence the movement of a particular currency. Unlike other trading exchanges such as the NYSE, NASDAQ, and other major stock trading organizations, trading in the foreign exchange market can be extremely volatile on a day-to-day basis. It is crucial that anyone who is going to invest in the Forex market be as informed as possible on the global economic news of the day that influences the market. There are numerous economic factors that influence the movement of a particular currency.

When you are considering investing in the foreign exchange market there are many economic indicators and factors that governments, as well as privately owned companies provide that can give an inside look at possible economic performance. When countries issue economic reports they not only show the country's particular policies and current events but also reveal the economic health of the country.

Many times a responsible and reputable broker can be a good source of economic news and give good advice on what particular trades may be good at a particular time. If you don't have the time to stay up on the most current reports, a good broker can be crucial to your Forex trading success by studying these reports and determining whether a particular country is in an economic decline or enjoying a major increase. The great thing about Forex is that you can make money either way.

News that is necessary for the Forex trader is of much greater detail than the typical investor is interested in or even cares to follow. When you are considering investing in a particular country's currency, a few of the main factors to look at include current events and the state of the economy in that given nation. Statistics such as housing, unemployment, inflation, budget deficits, and current political climate can all affect the value of the currency. As mentioned before, money can be made in positive as well as negative political climates. You can make money from countries that are experiencing tremendous political unrest and rampant inflation as easily as one that is fiscally responsible and experiencing great economic growth.

The Gross Domestic Product, known more commonly as the GDP, is another huge economic indicator that experienced traders look at intensely when considering trades. The GDP is the total market value of all goods and services that are normally produced within a particular country. Normally this figure is an annual one and is not given in shorter periods. Because of the volatility of the Forex market this is considered a lagging indicator that becomes more measurable after the particular country's economy has started to follow a unique trend.

Other important factors for Forex trading include retail sales reports, which are the total sales receipts of all the retail stores in the country, industrial production that includes factories, mines, utilities and more, and the CPI or consumer price index. The CPI is the measure of the change in the prices of consumer goods in 200 different categories. This report can show whether or not a country is making a profit or losing money on their products and services. The exports a country contributes is are very important when looking at this indicator because the amount of exports can reflect a currency's weakness or its strength.

As you can see there are a lot of factors that need to be considered when investing in foreign currencies. It can be fun and exhilarating, but doing your homework will always pay the largest dividends.

Gregg Hall is an author living in Navarre Beach, Florida. Find more about this as well as FX trading strategies at www.FXTradingStrategies.com

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For the most part, a reputable broker can look at economic indicators and know which trades will be best. Reports on these indicators are released at scheduled times and can tell if a certain country is experiencing improvement in the economy or if the country's economy is on the decline. When the prices fluctuate, a great deal one way or the other, the price can be affected.
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Speculators are active in the FX markets, as they are attracted to the opportunities that volatile and changing market conditions create. A multitude of economic forces impact the world�s currencies. Some of the forces at work include interest rate differentials, domestic money supply growth, comparative rates of inflation, central bank intervention and political stability. In times of global uncertainty, some currencies may benefit from perceived �flight-to-safety� status. Or, if one country�s economic outlook is perceived as strong by market forces, its currency may be firmer than another country�s currency, where economic or political conditions are viewed with caution.

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Any broad-based economic conditions can cause a sudden and dramatic currency price swing if such conditions are seen to be changing. This is a key concept because what drives the currency market in many cases is the anticipation of an economic condition rather than the condition itself.

currency

Once Soros of Quantum Fund hit the nail on the head with his theory of reflexivity in the market and that is exactly how these players work in the market. That rather romantic tool of daily candlestick chart is useful because whenever some players start positioning to start or stop short-term moves in Yen market, say several hundred pips, for whatever reasons, it reveals their intention to the market, more often than not. It sounds so weird to say tens of yards are spent relying on indicators so primitive like hand-drawn candlestick charts, but that is the truth in Yen market. Same as millions of soldiers risking their lives depending on how their generals draw up the battle plan with their cheap red and blue pencils in their operation room desk. Crazy world, I would say, but that is the fact. And as you say, battle is a battle and those ones who make their first move with their candlestick may not always win either.

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European Morning Update 7th April 2008

Mon, 07 Apr 2008 01:32:41 -0400
Dollar recovers in early Asian trading

Releases from Australia:
Forecast Actual
March AiG Performance of Construction 53.9 (prior) 48.4
February Trade Balance AUD -2.5bn -3.29bn
February Building Approvals (MoM) +0.0% +0.1%
March ANZ Job Advertisements -2.1% (prior) - 0.7%

A 10 month low in new orders hit the AiG Performance of Construction Index to send it tumbling 5.5 points to 48.4 which indicates a contracting market. The AiG commented, “Interest rate hikes, the rise in the cost of funds and falling consumer sentiment are clearly taking their toll on the industry, and with new orders now at their lowest level in 10 months, we are likely to see further weakness ahead.”

In other releases job advertisements dropped for a 2nd month in a row with March declining by -0.7% over the month. The annual figures still look positive at 20.8% but that Australia has passed its peak will not be disputed following the series of interest rate hikes and the softness in overseas demand due to the global slowdown.

It is no surprise then that the trade deficit widened considerably, although it was much more than consensus forecast.

Releases from Japan:
Forecast Actual
February Leading Economic Index (P) 50.0% 50.0%
February Coincident Index (P) 44.4% 44.4%

The following economic releases are due today:

February
French Trade Balance EUR -3.7bn
German Industrial Production (MoM) - 0.4%
German Industrial Production (YoY) +5.3%
U.S. Consumer Credit USD 5.5bn

March
Swiss Unemployment Rate 2.6%

April
Euro-zone Sentix Investor Confidence +0.2

Friday didn’t quite have the outcome I had expected. From the basic break lower in the Dollar it does tend to suggest that the downside should come under further pressure but I can’t say that the break has developed in a particularly clean manner.

Never-the-less, with the break I shall stick cautiously with a Dollar bearish outlook but within that my impression was that we should see an initial pullback and that does seem to be occurring this morning. What we shall need to do is watch critical Dollar resistances and work our way from there. As I write we do seem to be very close to these resistance areas.

I should add that once the pullback is complete the resumption of the losses should be quite swift and any deviance from this would begin to suggest that the Dollar could resume its recent modest strength.

Note important support and resistance areas:

USDJPY EURUSD USDCHF GBPUSD
Res: 103.57-86 1.5810-57 1.0169-17 2.0030-47
Res: 102.61-93 1.5700-40 1.0120-30 1.9910-55

Spt: 101.70-06 1.5620-41 1.0050-80 1.9813-40
Spt: 100.87-29 1.5510-48 0.9950-90 1.9757-88