A Compendium of Forex News Events That Move the Prices of Currency Pairs in the Forex Markets

A Compendium of Forex News Events That Move the Prices of Currency Pairs in the Forex Markets

A good starting point for trading news events is to first, take a closer look at which news events would be worth trading.
News events increase the volatility of currencies they have an impact on. Thus, only news which have the highest potential for moving the currency markets are worth considering at all.
The price action in several forex markets will move in response to most economic news from several nation states of the world; nevertheless, news pieces out of the United States are the most-monitored because of their potential for causing the biggest moves in the forex markets.
The United States has the largest economy in the world, and its national currency, the US dollar, is the earth’s default currency of reserve; which means the US dollar features in about 90% of all forex transactions.
Outlined below are some of the news reports which affect the global currency markets

1. Changes in Interest Rates

Interest rates are very important indicators that affect currency pair prices on the forex markets. They are so important that Economists are known to have tried in the past to model the relationship between a nation’s currency’s interest rate differentials with the currencies of other nations and its value. The general consensus is that the difference in interest rate is somewhat equal to the expected change in the national currency’s spot exchange rates. This is the International Fisher effect at play.
When Central Banking authorities hike interest rates, there is a corresponding appreciation in the value of the national currency; while there is a corresponding decrease in the value of the national currency when Central Banking authorities reduce interest rates. It happens this way because investors are always on the lookout for countries with high interest rates so they can invest their funds in them so as to maximize the returns they get on them. Thus, they withdraw their funds from nation states with lower interest rates and place them in national states with higher rates of interest. This action, in turn, drives the demand for the national currency which causes the national currency to appreciate in value.

That notwithstanding, nation states can use the instrumentality of lower interest rates, for instance, to spur an economy that is dragging or higher interest rates to slow down an economy that is already in high gear. Thus, savvy forex traders are able to anticipate interest rate decisions by simply following happenings in the national economies of the currencies in which they are interested in.
Do note that trading on interest rate decisions yield profits only if the trades are long-term in their outlook.

2. Pending Elections

Elections are political events common to almost all nation states on earth. Elections potentially have a huge impact on the national currency. Most forex traders view upcoming elections as potential sources of political instability and uncertainty, and that contributes to the greater volatility of the national currency of the nation states which are undergoing political change experience in the markets. In most scenarios, it is just enough for forex traders to monitor pre-election polling in order to have a sense of what possible outcomes might arise out of the elections proper; more especially to discern if there will be a change in the leadership of the nation state at the top. They watch out for this because a change in the top leadership of a nation state will most likely result in changes in monetary and fiscal policy, two important drivers of the price action of the national currency in the markets.

3. A Change in Political Leadership

A nation state’s currency derives its strength from the actions and inactions as well as the decisions and indecisions of its political leadership. When a nation state’s government changes through an election or by other means, there is the great likelihood that new economic policies or the modified versions of existing ones will be imposed on the nation. The uncertainty causes the nation’s currency to either rise or reduce in value. For example, if the new government is fiscally responsible compared to the out-gone government which happened to be fiscally reckless, the nation’s currency will experience an increase in its value. In like manner, a government — new or old — that implements policies perceived to be unfavorable to businesses in the national economy will most likely cause the nation’s currency to suffer declines in its value on the markets. A good example that happened recently is when the US dollar plunged to a 10-month low in July of 2017 when President Trump’s healthcare law lost legislative traction. Reuters reported extensively on this.

4. Recommendations from well-known Analysts

It is not unusual for a report that is issued by or analysed by or a recommendation by a reputable analyst in the markets to move the price action of several currency pairs in the markets. While the analyst is usually not an insider or have inside information about the corporations or nation states he or she is analyzing, he or she usually takes several pieces of information any one will find in public domain and use his or her expertise to interpret the implications of those several pieces of information.

5. Gross Domestic Product (GDP)

The Gross Domestic Product — GDP — is the broadest indicator of the overall health of a nation’s economy. It takes a lot of work and a lot of time to compile and report on. As influential as it is, its release doesn’t usually move the markets much because of the fact that several of its component data would have already been known to forex traders prior to its release. By the time the GDP figures are released, market expectations about it are fairly accurate. That notwithstanding, if the figures do come out and vary by a wide margin to the markets’ expectations, then it will affect the price action of several currency pairs in the markets. The GDP is an important indicator that every forex trader ought to understand and master. It is the singular best measure a trader can use to assess where he or she stands in the business cycle.

6. Rate Decisions by the Central Bank

Every month, the Central Banks of most of the world’s economies meet to deliberate on what interest rate they will set for each of their national economies. They can choose to leave the existing rate or raise or lower it. Whatever the decision is, it has far-reaching implications for the national economy and for forex traders. This is why interest rates decisions by the Central Banking authorities of nation states are closely monitored by forex traders.
Should the interest rate be raised, the price action of the nation’s currency in the markets will be bullish — meaning that it will increase in value. If, on the other hand, the interest rate is reduced, then the price action of the nation’s currency in the markets will be bearish — meaning that the currency will exchange at a lower value in the markets.
A decision to leave the interest rate can either impact the markets as bullish or bearish, depending on the prevailing market sentiment at the time and the economic circumstances of the nation state.

7. NonFarm Payrolls (NFP)

The US Bureau of Labor Statistics compiles the NonFarm Payrolls data and releases the results of its survey every first Friday of every month. The report tracks and reports on the overall number of employees in the United States, excluding such employees as government workers, workers in agriculture and those who work for non-profits. Overall, the report tracks about 80% of the United States’ “working” population.
It is common practice for financial news outfits to forecast the NonFarm Payrolls report prior to its release.
The practice of forecasting the report before its actual release attracts the attention of traders in the currency markets, who speculate on the direction and tone the actual release would take and plan out their trading bets based on these speculations. 
If, in the actual release, the rate or the figures are much better than what the markets speculated, then the markets will experience a buoy which will result in a bullish trend in the relevant currency markets.
On the other hand, if the number of unemployed comes out higher than actually speculated by the markets, then there will be a bearish run on the markets.
The NonFarm Payrolls report is so influential that it affects other indicators forex traders watch, some of which are the Consumer Consumption Rate, stock market indicators and their likes.

8. Employment Data

Every nation on earth periodically compiles and releases its employment rates. The indicator is important because it tells the story of how well the nation’s economy is doing. A high rate of unemployment indicates a national economy that is not doing well. It’s either it is not growing as fast as the growth of its population or it has stagnated completely. For forex traders, a high rate of unemployment is a leading indicator of a currency that is bound to depreciate in value; and they will place trading bets in that direction. There was a recent example that illustrated this. As US non-farms payroll data was released with an optimistic note in September, the DXY — the US Dollar Index, which tracks the performance of the US dollar compared to a basket of foreign currencies — appreciated from 94.95 to 95.35.

9. Federal Funds Rate

The FOMC — the Federal Open Markets Committee — I’d the body that has the constitutional responsibility for determining US monetary policy. It meets eight times in every fiscal year to do this. Because of the weight of responsibility the FOMC is responsible for, the decisions it arrives at, at its meetings, have far-reaching consequences for the forex markets; especially if those decisions are at variance with the expectations of the forex markets. The FOMC has a key tool it manages as it tries to discharge its monetary responsibilities — the interest rate. Interest rate differentials between any two currencies in a currency pair, is one of the key drivers of transactions in the currency or forex markets; hence, the reason why forex traders closely monitor FOMC meetings and closely analyze the decisions that come out of those meetings. As part of its statement to the investing public after every FOMC meeting, the FOMC releases some future guidance about the direction IS monetary policy would take. A change to the Federal Funds Rate or just simply changing pre-existing perceptions about the future course of US monetary policy, is enough to move the price of the US dollar, the world’s most important currency for international transactions.

10. Capacity Utilization

Capacity Utilization is a metric that tracks then proportion of a nation’s installed production and manufacturing abilities that is utilized in specific periods under consideration. It is computed as a percentage by considering a nation’s national output using its current production and manufacturing resources as a percentage of the total or maximum output of the nation’s production or manufacturing abilities if all of its production and manufacturing resources are put to complete use.
Capacity Utilization is a very important metric because it provides forex traders with much needed clues about the total utilization of a nation’s resources. It also helps forecast the current and future strengths of a national economy and by implication, its currency.
For example, if the rate of capacity utilization reduces from one comparative period to another, it implies that the economy is slowing down and hence, the likelihood of its currency weakening increases. If, on the other hand, the rate of capacity utilization increases from one period to another, then the economy is strengthening as well as its currency.
Thus, capacity utilization is one indicator forex traders watch very closely.

11. Strong Economic Performance

Nation states whose economies perform exceptionally well attract foreign investors and their capital, away from other countries they (the foreign investors) perceive to be fraught with more political and economic risk.
As an example, political turmoil will definitely cause an outflow of foreign capital from the nation state to other nation states perceived to be more stable.

12. Industrial Production Index

The Industrial Production Index indicator tracks the level of production in three key, broad categories — mining, manufacturing, and gas or electric utilities. The US Fed compiles and reports this indicator mid-month of every month.

13. Consumer Price Index (CPI)

Of all of the economic indicators out there, the Consumer Price Index is perhaps the most used; oftentimes as a measure of inflation in a nation’s economy. 
The CPI is the historical average of prices paid by consumers for a basket of market goods. What the CPI does is it shows whether consumers are paying more or less for the same basket of market goods. If the CPI shows consumers are paying more, then an inflation is building up in the economy.
The CPI is monitored by Central Banks. If the CPI shows an inflationary pressure building up in the economy beyond a set mark, then an increase in interest rates is used to counter it.
As an example, in November of 2014, the Canadian CPI came in at 2.3%, beating market expectations of 2.2%. The effect of that was that the Canadian Dollar traded up at a six-year high against the Japanese Yen.

14. Consumer Confidence Index and the University of Michigan Index of Consumer Sentiment

There are many consumer surveys of the US economy, but two of them stand out: the Consumer Confidence Index compiled by the Conference Board and the Consumer Sentiment Index compiled by the University of Michigan. These two consumer survey reports are widely followed by Economists, policymakers and forex/CFD traders.
Consumer reports are important because they report on the feelings of consumers. Knowing how consumers feel is important because it they are big spenders in the economy.
If the reports deduce consumers are feeling confident about their jobs and their prospects in the economy, it implies that they will be inclined to spend more of their income buying up goods and services in the economy; which means the economy will be bullish.
If, however, the report shows consumers are feeling less secure in their jobs and are fearful of their prospects in the economy, they will be inclined to spend less of their income buying goods and services in the economy; which means the economy will turn bearish.
The Consumer Confidence Index is released towards the end of every month while the Consumer Sentiment Index published by the University of Michigan is released twice in every month.

15. Stock Market

Forex traders believe that the value of a nation’s currency is impacted by the performance of its stock markets. 
When a nation’s stock markets rally, its national currency strengthens. 
In like manner, when a nation’s stock markets dip or outrightly crash, its national currency weakens. 
While this relationship between a nation’s stock markets and the strength of its currency can be taken as a rule, there are some exceptions to this rule. For example, before the global economic crisis that hit in 2007, the Nikkei (Japanese Stock Exchange) and the USD/JPY currency pair were inversely correlated because the Japanese Yen strengthened every time the Nikkei rallied. That relationship reversed after the global economic crisis hit in 2007, such that both the Nikkei and the USD/JPY now move in the same direction.

16. Retail Sales

Retail Sales is compiled and released two weeks into every month at 8:30 ET by the US Census Bureau, a part of the US Department of Commerce as The Advance Monthly Sales for Retail Trade.
Retail Sales gives the nominal dollar value of all retail sales in the US economy along with the percentage change in the figure from the previous month.
Forex traders are more interested in the percentage change in the figure from one month to the next, rather than the body of the report itself. Market prices for currencies are impacted if there is a large difference between expected percentage change and the actual percentage change reported.
The Retail Sales report is also popular because it reports on the Personal Consumption Expenditures (PCE) in the economy. The PCE is a leading indicator of the growth of the US economy.

17. Durable Goods Orders

The US Census Bureau, a part of the US Department of Commerce, computes and releases the Durable Goods Orders as The Advance Report on Durable Goods about eighteen business days into the month, after the actual month for which it is reporting. The precise day depends on the schedule of other key releases during the period for which its release is due.
Durable Goods are consumer items that last at least three years. They are usually expensive items and are not bought so frequently.
If the demand for durable goods in the national economy is strong, the corporations in the economy will be upbeat about their short-term prospects because of the increase in the demand for their goods; which is bullish for risk appetite in the economy.
If, on the other hand, the demand for durable goods is weak, the corporations in the economy will be downbeat about their short-term prospects because of the decrease in the demand for their goods and services; which is bearish for risk appetite in the economy.

18. Initial Jobless Claims

The US Department of Labor measures and releases the Initial Jobless Claims in the US economy. It is a tally of the number of people signing up for state unemployment insurance for the first time.
The figure is reflective of the strength of the US labor market. 
If the figure is large beyond reasonable expectations, it implies that the labor market is weak and hence the US economy is weakening. This, in turn, weakens the national currency, the US$.
If, on the other hand, the figure is low, it implies a labor market and a national economy that is strengthening. This, in turn, is bullish or positive for the US$.

19. Trade Balance

A nation’s international trade balance is the net of the inflows and outflows of goods and services in its economy. The exchange rates of a nation’s currency closely correlate with its international trade balance.
When a nation has a trade deficit, it implies it is a net importer of goods and services from other nations. More of the nation’s currency will be sold to buy foreign exchange to pay for these goods and services, and the implication is that its currency will weaken so that its exchange rate will trend lower.
The opposite is true. When a nation has a trade surplus, it implies it is a net exporter of goods and services to other nations. More of the nation’s currency will have to be bought by these other nations to pay for its goods and services, leading to an increase in the scarcity of its currency and hence, its value. The currency’s exchange rate will trend higher.
The relationship between a nation’s international trade balance and its exchange rate reflects the basic economic law of demand and supply. As more citizens and businesses in a nation “give away” their currency in exchange for the goods and services of other nations, there is a surplus of their currency in the markets. The surplus acts on its rate to push it lower. For example, the United States had a $488 billion trade deficit in 2002. Its national currency, the US$, lost 9% of its value from February of 2002 to July of 2003.

20. Producer Price Index

The Producer Price Index tracks the changes in the cost of goods manufactured in an economy. It is a leading indicator of inflation and is closely watched as a result. The typical fundamental trader uses the PPI to assess the risk of inflation of any given currency; even as day traders use the index to assess potential short term trading opportunities that may arise out of a deviation of the index from forecast.

21. Personal Consumption Expenditures Price Index

The Personal Consumption Expenditures Price Index or the PCE Price Index is an indicator the US government uses to gauge consumer spending on goods and services in its economy. 
The PCE Price Index is important because Personal Consumption accounts for about two-thirds of total household spending in the economy, which in turn accounts for well over seventy percent of all economic output or GDP. 
The PCE Price Index measures the average increase in the prices if both durable and non-durable goods as well as in the services bought by individuals, families and non-profits.
A rise in the PCE Price Index forecasts possible inflationary pressure on the economy. Conversely, a decrease in the PCE Price Index forecasts possible deflation in the economy.

22. The Purchasing Managers Index (PMI)

The Purchasing Managers Index (PMI) is an important indicator of the conditions of business in the manufacturing and service sectors of the US economy. The PMI reflects the changes in the spending of corporations.
To arrive at the index, five hundred purchasing Managers are surveyed and requested to assess the relative conditions of business with regard to employment levels, current inventories, new orders, production state and pending supplier deliveries.
If the index reads above 50, it indicates that there is growth in the specific sector surveyed. The converse is also true.
The PMI is important because its values in the manufacturing and service sectors of the economy accurately forecast growth or slumps in the economy.

23. Durable Goods Orders

The Durable Goods Orders is compiled by the US Census Bureau and tracks the cost of durable goods orders received by manufacturers during any period being considered. Durable goods are those goods designed to last for three years or more; examples being motor vehicles and appliances. Durable goods often require sizeable investment in cash upfront and is this a good indicator of the US economic situation at any point in time.
The final Durable Goods figure shows indicates how productive the US economy has been. For example, a high reading indicates a bullish US economy.

24. New Home Sales

Housing market data in any economy is very important because housing data indicates the strength or weakness of the economy. This in turn reflects on the value of the economy’s currency. A good example of the chain effect is the US housing market crash of 2007 which triggered off a global financial crisis in the following year.
When a currency trader has a good grasp of housing data, he or she would be well-positioned to take short or long positions with regard to specific currency pairs and at appropriate times in the markets.
Various housing data are reported by various institutions; the bulk of them, on a monthly basis. For instance, the New Home Sales is published every month by the US Census Bureau and it tracks the sale of new homes under construction. 
New Home Sales is computed as a percentage  on a month-over-month basis; while the US Census Bureau also publishes this data on a year-over-year basis. 
New Home Sales reports have moderate impact on currency and commodities markets.

25. Construction Spending 

The Construction Spending indicator is calculated by comparing the present value of all constructions over a period of time with the value of all constructions over the same but previous period of time. The Construction Spending indicator is watched closely by forex traders because of its implication on the rise or fall of interest rates, since most of these constructions are financed by bank loans.
Construction Spending, as indicator, fluctuates wildly during real estate seasonal highs and lows. It also correlates directly with the wealth of a nation’s citizens; which means that a rise in its value over any period of time implies an economic upsurge and a growth in the wealth of the citizens. 
Construction Spending has a minimal impact on the markets; nevertheless, it is important because its rise indicates a national currency that’s consolidating and a positive dynamic to the national economy.
Construction Spending numbers are published on the first business day of the month, at 10:00 a.m. EST (New York).

26. Factory Orders and Manufacturing Inventories

Factory Orders and Industrial Production figures are fairly accurate indicators of happenings inside a nation’s industrial sector. Although these two indicators might not weigh much on the markets; yet, they are important because of the importance of the signals they give off.
For example, a rise in factory Orders is an early indicator of an economy that is expanding and at risk of inflation.

27. FOMC Meeting

The Federal Open Market Committee (FOMC) meets eight times during the fiscal year to deliberate on the nation’s (US) economic and financial conditions, and advise on appropriate monetary policy to implement so as to sustain long-term price stability and economic growth.
The minutes of every FOMC meeting are released by the Board of Governors of the Federal Reserve and serve as a clear guide of the monetary authorities’ thinking of the future direction of US interest rate policy.

28. Crude Oil Prices

There are several important currency pairs that rise and fall as the price of crude oil rises and falls in the commodity markets. The price of the barrel of crude oil has been a leading indicator of several national economies and even the global economy for several decades. Experts believe that will not change anytime soon. 
The price of crude oil links with the economies of several countries in many ways. 
For one, nation states that have an abundance of crude oil benefit from high oil prices; which strengthens their economies and their currencies.
On the other hand, nation states with low or no reserves of crude oil benefit when crude oil prices are low and loose out economically when crude oil prices are high. Their currencies also suffer a loss in value.

29. War

War is one of the few events on earth that has the potential of upturning a foreign exchange market. For sure, when war happens, it brings with it several negative connotations for the economy of the nation states involved.
War causes death and destruction, and negatively impact the economies of the nation states involved. Also, the currencies of the nation states involved become very volatile.
In what is perhaps an irony, war can also help lift weak and struggling economies through the boost the economies get from wartime production. As an example, the US came out of the Great Depression when it entered into World War II.

30. Government Debts

Government debts are public or national debts owed by a national government. 
A national economy whose government owes sizeable debt will find it hard to receive inflows of foreign capital and might suffer an inflation, because foreign investors will sell off the nation’s bonds in the open market if the national debts reach a threshold. A decrease in the exchange rate value of the nation’s currency usually follows.

31. Terms of trade

The terms of trade is computed as a ratio of a nation’s export prices to import prices. As can be seen, it relates to the nation’s current accounts and balance of payments.
A nation’s terms of trade gets better to the extent its export prices rise higher than its imoort prices. The more a nation’s export prices rise higher than its import prices, the higher the national revenue and the higher the demand for its national currency is; which in turn, increases its value.

32. Speculation

Forex traders speculate, by making assumptions about the future impact of certain events on a nation’s currency and place trade bets based on these assumptions. One such event is when a change in the government of a nation is iminent. A change in national government usually brings with it sweeping changes in the nation’s monetary and fiscal policies. This is the reason why scheduled national elections are closely watched by forex traders.
The collective effect if forex trading is that traders create a surplus or a shortage of specific currencies through the influence they have on the prices of currency pairs through their trades. When forex traders perceive that anticipated policies will favor the business climate, the value of the local currency appreciates due to the high demand for it. The opposite is also true.
In all, the perceived strength of a national currency relative to the US dollars rises or falls because of speculation.

33. International Summits and Meetings

When officials of various nations meet under any circumstances, they usually arrive at new agreements or substantiate existing agreements about  matters that are of mutual concern to them.
Forex traders closely monitor these summits and meetings so as to get clues about the state of the relationship between specific nation states as well as the state of the world itself.
Meetings held on critical issues such as the Greek debt crisis or Italy’s continued membership of the European Union impact the markets greatest.
As an example, recent speculations that Italy might be planning to leave the European Union caused the Euro to become bearish in the medium term.

34. Recession

A recession is defined as two consecutive quarters of negative growth in a nation’s GDP. It ends as soon as a quarter of growth is recorded.
The importance of a recession as an indicator lies in its comprehensiveness; hence, politicians, policy makers, economic analysts, forex traders and their likes all focus on this indicator. For example, most investment banks adopt a top-down approach to forex analysis by starting off with making projections about the general state of the economy in the nations in whose currencies they want to place trade bets. Do note that GDP features prominently in this kind of analysis.

35. Capital flows

Capital flow is defined as the amount of money flowing in and out of a nation’s economy as a result of capital investment purchasing and selling.
The capital flow balance for a national economy is the metric which measures its capital flows and can be positive or negative.
A positive capital flow balance implies the national economy has received more capital inflows than outflows, that is, it has received more foreign investments than it has lost; while a negative capital flow balance implies it has had more capital outflows than inflows, that is, it has lost more foreign investments than it has received.
An increase in foreign investment into a national economy is good for the economy as it leads to a higher demand for the national currency; since the foreign capital coming in will have to be exchanged for the local currency. This, in turn, causes the local currency to increase in value.

36. Good or Bad Governance

Good or bad governance usually centers around political and economic performance. When foreign investors perceive a nation state as being at less risk of experiencing a political turmoil, its economy becomes attractive to foreign investors, who, in turn, withdraw their investments in more volatile climes and place them in the nation state’s economy. An increase in foreign investment inflows also runs off positively on the local economy as there is an increase in demand for the local currency which enhances its value.
This is the reason nations with excellent financial and trade policies leave no room for any uncertainty in the value of their currencies, while the currencies of those nation states prone to politicsl turmoil usually depreciate in the markets.

37. Movements in the Capital Markets


Capital market movements in national markets indicate potential changes in national currency exchange rates. This is because movements in a nation’s capital markets has an effect on the value of its currency, which in turn is reflected in its exchange rates.
A nation’s debt and equities markets respond to anticipatory changes in the broader economy, as the value inherent in those markets derive from the success or failures of the corporate players in the national economy. These corporate players in the economy succeed only yo the extent to which they are able to generate healthy revenues from their activities in the economy.

38. Economic Planning Activities

A nation state is as investor friendly only to the extent to which its monetary and fiscal policy is investor friendly. This means if the national government puts plans and incentives in place to attract foreign capital, there will be an influx of investors and foreign capital into its economy.
The influx of foreign capital into the economy will result in an increase in the demand for the local currency as they seek to exchange foreign currency for the local currency. In that way, the value of the local currency is enhanced.

39. Natural disasters

Natural disasters, for example, hurricanes and earthquakes, rapidly and substantially deplete a nation’s resources and undermines its economic output; and put its currency in decline.
Because natural disasters extensively damage the infrastructure in an affected area, it makes it difficult for that area to function effectively and drains scarce funds that could have been put to more productive use but would now have to be committed to repairs. 
Natural disasters also hurt the morale of a nation’s citizens which in turn results in declining consumer confidence and spending.

40. A Change in National Ideology

When a nation’s national ideology changes, there is an impact on its currency. For example, when a national government changes, it usually implies a change in the national ideology for the citizens of the nation. This implies that there might be “new directions” in the nation’s fiscal policy, trade, and other such drivers of national economic growth. All of these directly impact the perceived strength of the national currency.
As an example, if an incoming government is perceived to be more inclined towards socialism, currency traders can get nervous and sell off their investments in the national currency; thus bringing its value down.

41. Unscheduled Elections

An unplanned election roils the value of a nation’s currency. It usually comes through a no- confidence vote, corruption scandals or other similar circumstances like a citizens’ protest that results in work stoppages. All of these result in uncertainty and increased political instability which is bad for the national economy.

42. Cross-country Disputes 

When two nations are at loggerheads with each other, it creates uncertainties around the value of their currencies and affects the markets.
For example, US sanctions on Russia in the recent past caused the value of the Ruble to plunge.
Another recent example is the loss in the value of the Canadian Dollar when Saudi Arabian authorities ejected the Canadian ambassador, threatened to evict thousands of Canadian students studying in the country as well as Canadian patients receiving treatment in its hospitals and also suspended airline flights from Saudi Arabia to Canada when diplomatic relationships between the two countries broke.

43. Referendums

The forex markets respond negatively to any event that threatens the unity of a country or of a political block within the country. 
A recent example was when Scotland, in 2014, decided to hold a referendum to decide whether it would remain as part of the United Kingdom or not. In the days leading up to the referendum, the British Pound came under severe pressure as news media speculated on its possible outcome.
Today, the Brexit deal continues to affect the value of the British Pound in the currency markets, much more than any other factor, as uncertainties about whether or not the United Kingdom would leave the European Union with a deal or not continues to weigh down on the value of the British Pound.

44. Political Speeches and Comments

The currency markets follow closely every speech or comment important political figures make. The reason is because the speeches and the comments have the power to reset the markets’ expectations.
A good example happened recently when the markets expected that the US Fed would support an already weak US dollar. That expectation changed when US Treasury Secretary, Steven Mnuchin, went on record, saying that a weak US dollar was actually good for the US economy. The US dollar fell in value to a session low after the comment.

45. Currency Fixing

Almost every international exchange of goods or services is done in the US dollar; hence, the US dollar has become the world’s reference currency. So it is in the interest of national governments to ensure that their currencies exchange favorably with the US dollar and they go to great lengths to achieve this.
So nations who export more goods and services than they import usually devalue their currencies to a limit to temporarily shore up the purchasing power of their citizens and increase their prosperity in the local economy.
For those nations who import more goods and services than they export, it is in their interest to ensure their currencies are as strong as they can be against the US dollar so that their citizens pay less for goods and services.
National governments, through their monetary authorities, actively trade in the forex markets for this purpose. Bring present as a player in the currency markets ensures that they are able to constantly control the values of their currencies. They do this by fixing the exchange rates obtainable in the currency markets through their national banks, who constantly influence demand and supply in the markets.
Do note that this practice of a government arbitrating currency prices in the markets is considered unethical and in some cases have led to currency wars between nation states.

46. Trade Balance

The balance of trade is an important indicator that affects the exchange rate of a nation’s currency and hence the demand and supply for it. 
If a nation’s trade doesn’t balance out, that is, its imports equal its exports, then there is going to be more demand for or more supply of its currency in the markets. The demand-supply push-pull relationship determines the trading price for the currency pair in the markets.

47. Trade Tariffs

National governments impose trade Tariffs on specific goods and services as they try to protect their local industries. 
In general, tariffs are problematic for businesses because it increases their costs of production as the cost of imported inputs rise and reduces their revenues and profits since they have to raise their selling prices in order to be able to make profits out of their operations.
Tariffs also affect the exchange rates of a currency in the markets. According to economic theory, the price action of foreign currency pairs are supposed to help mitigate the effect of tariffs on businesses in a nation; but even that is bound to create other problems for businesses in the national economy that export.

48. Trade Wars

Trade wars happen when a nation state’s government decides to impose new or additional tariffs on goods and services coming into its economy from another nation state. It directly results in less purchase of the goods or services because of the extra layer of cost it implies for end-users or buyers. And for the nation state bearing the brunt of the tariffs, the rate of investment in its economy reduces, economic growth slows and prices in the economy rise.
A slowdown in any nation’s economic growth negatively impact investor confidence and financial assets — equities, bonds, currencies; and their likes — all depreciate in value.

49. International Agreements on Trade

Trade agreements between nation states impact trade and investments globally. These trade agreements shape the relationship between corporations of nation states. For example, corporations that are into exporting of products or services need to be constantly aware of the impact the trade agreements signed by their home governments as well as the governments of other nation states will have on their business. In like manner, lenders have to take into account trade agreements in order to better understand the financing needs of their customers.

50. Acts of Terror

Acts of terror result from a complex interplay of geopolitical issues. They undermine the security of countries, cities and markets globally.  Acts of terror, which are unprovoked attacks on civilians and infrastructure, create uncertainty inside of which fear and apprehension thrive. In the last twenty years, there have been acts of terror in New York City (2001), Madrid (2004), London (2005), Mumbai (2008), Paris (2015) and Brussels (2016).
Acts of terror negatively impact markets because they cast doubt on the viability of the economic status quo. Because of the uncertainty acts of terror cause, investors become apprehensive and may take action on their investments which might have far-reaching intended and unintended financial consequences.
Specifically, it is “normal” to see various equities, currencies and commodities markets around the world become volatile or even turbulent as acts of terror occur.

51. Strike Actions

Strike actions happen when a nation state’s labour force or a segment of its labour force decide to down tools. Such action, though local, usually have major direct and indirect economic impacts. One good example is the 54-day strike General Motors suffered in 1998. Its direct effect was the immediate decline in the company’s auto sales. The cost of the strike to the auto company was $1.2 billion; which caused a net loss of $809 million in the quarter in which the strike held; compared to a net profit of $973 million during the same period the previous year.

52. Economic sanctions

Economic sanctions are an important toolkit in the arsenal of nation states and multilateral organizations like the United Nations. The United States, in particular, is the nation that has most imposed negative economic sanctions post World War II. 
Economic sanctions usually arise out of conflicts involving one or more nation states. As an example, the war going on in Syria is fertile ground for economic sanctions as it involves several nation states with diverse interests each is seeking to protect. Any US sanction arising out of this conflict will have significant impact on global markets and the investing public. For example, in recent weeks, the US threat of sanctions against Iran is already roiling oil prices.

53. Exiting from treaties

Whenever a country exits a treat, there is significant economic value at stake. A good example is the United Kingdom’s decision to leave the European Union through the Brexit vote. The British Pound (GBP) was affected, as it reached its lowest levels since 1985. This happened because the United Kingdom’s economic prospects became suddenly uncertain.

Frequently asked Newbie Questions

If you are just getting going then you probably still have a lot of questions about day trading, spread betting, trading risk management, money management We’ve compiled a list of possible questions on Forex trading that you might have and concise answers. This guide is perfect for beginners(and experienced traders) and will help you better understand Forex trading and decide if it is right for you.

There are many benefits of Forex trading. It is a great way to supplement your income. It is also open 24 hours a day for five days a week, so that means that you can trade a currency pair when you want. It doesn’t matter if you are on holiday or it is the middle of the night. Your mobile phone or laptop is all you require as a new investor to trade Forex. The prices in the Forex market are relatively stable compared to the stock or equity markets. The Forex market also has high liquidity levels. This is because of the large sums of money available for Forex trading; about $5 trillion is traded every day.

The basic principle of Forex trading is the buying and selling of another currency and waiting till you are in a profitable position before you exit. This is a huge advantage for entry-level traders because you can completely focus on two currencies as opposed to being overwhelmed by all the options available on the stock markets.

Getting started with Forex trading is as simple as opening an account on an online trading platform. Fill out the information required on the platform form, wait for verification; your trading account is ready to soon as it is open. You will need to credit your account to begin trading, of course.

Please note, it doesn’t matter how small or large your trading capital is, always put a trading plan in place before you trade.

Forex, (the short form for ‘Foreign Exchange Markets’) is a term that used to describe the international trading market for selling and buying different currencies.

Forex trading has grown over the years and has a total value of over $5 trillion. For seasoned investors, the opportunity to get a piece of the largest trading market in the world is something not to be missed.

Entry-level traders also love the fact that they are not required to pay a commission on the trade profits. And as a bonus, you can access the market from wherever you are in the world. You can do a single trade or scalp with lots of trades if you have a low bid price to ask price spead.

As with other types of investment and stock trading, Forex trading comes with its own set of risks; especially when you are starting out. It is often considered more risky than conventional investment and trading options because it is leveraged trading. What this means is that you can use more money to trade than is available in your account.

The Forex market is the largest and most liquid financial market in the world. It has a daily trading volume of about $5.3 trillion. The fx market is also the only market that is open 24 hours a day. There are over 870 currencies to trade, which makes it 12 times larger than the futures market and 27 times larger than the equities and stock markets.

With leveraged trading, you can borrow the money you intend to trade with from your broker. You only have to deposit an upfront security fee just in case you incur any loss. What this means is that traders can invest small amounts but stake on bigger trades using the limited capital.

This is probably one of the most important skills a Forex trader needs. Making the decision to exit or enter a market must be arrived at with objectivity; devoid of emotion. A good way to do this is to consider price levels or the technical formations on your chart before making your decision.

You can also plan out your entry and exit strategy/ plan in advance. For beginners, it is always advisable to keep your trades small and increase your trade volume gradually or commit to a trade volume little at a time for the duration of a particular period. If you do this, you can mitigate your risk and the losses you might incur from a bad exit or entry position.

A market spread in the Forex market is the difference between the bid price and the asking price in a currency pair . This difference is calculated in pips and is used by brokers to determine the profit margins for a particular transaction.

Most beginner traders start with currency pairs like USD/GBP. Try to learn how to trade one pair rather than trying to understand what affect the exchange rate for all. Build up your knowledge with a focused approach and develop strategies that work. You might then want to maintain the base currency you know and look at another currency to pair it with.

There is no brick and mortar location for the Forex trading market. However, the largest trading centres can be found in London, Singapore , Tokyo, Hong Kong, and New York. Forex trading happens through electronic systems or over-the-counter markets where banks, licensed brokers and traders are connected.

This is why Forex trading takes place 24/7 (Monday to Friday), because a Forex market centre is always open somewhere.

There is no better time than now! Unlike conventional stock and equity markets, the Forex trading market is open for 24 hours a day (five days a week). So you can begin trading at any time of the day or night from your mobile phone or laptop.

This is made possible because of the different time zones in different countries. The perfect trading time varies from currency pairs, so you are not limited by the traditional 9-to-5 schedule of the DFW or NASDAQ exchanges. Which makes Forex trading ideal for anyone even those who work a 9-to-5 office job and cannot run trades during work hours or a parent who can only trade when the children fall asleep.

A pip is the unit used by Forex traders to measure the movement of currency when trading. For example, for EUR/USD, one pip is 0.0001.

As a day trader doing lots of trades you want a small difference between the bid price and the ask price. A wide spread will mean there is a high risk of trades ending unprofitable. When you are trying to take a few pips dozens of times a day you need single trades to be cheap to enter. The best Forex broker for day trading may not be the best for trading strategies with a longer investment horizon, or if you are trading market data.

Swing trading is trading oscillating price movements of currency pairs in order to achieve a profit. Swing trading is normally informed by technical analysis and trades are held from a few days to several weeks.

Stop Loss is a trader management technique that is used to forecast the ideal time for you to exit a losing trade so you do not incur more losses. While losses are a natural occurrence in Forex trading, stop loss allows you to control the situation by providing you with the opportunity to make a quick decision about what to do when you are losing.

You can set parameters for your stop-loss plan by setting a limit of the amount you are willing to lose on your accounts. Or you can use visible volatility, prevailing market conditions, resistance and support levels on charts, or a time limit.

If you are a beginner in Forex trading, we recommend that you get professional training and advice before including a stop-loss strategy in your plan.

Binary options are fixed rewards and loss contracts in which the trader predicts when a currency will rise or fall within a practical timeframe. So you’re totally aware of how much money you get back if your prediction pans out or how much you’d lose if your prediction doesn’t.

Forex trading and binary options are similar because they can be started with a small capital and trades can be done online. The major difference between them is in how much profit you can get over time.

Trading with the binary options would require very accurate predictions in order for you to make a significant amount of profits. Binary options are also expensive in the long run. Forex trading, however, gives you the freedom to determine your stop-loss orders and profit targets. What this means is that you can still earn a profit even when most of your predictions are apparently incorrect.

A contract for difference (CFD) is a contract agreement is where you are paid for every pip that the currency you are trading has moved in your favour. If this doesn’t happen, then you would have to pay.

The are so named because every time you close on a position, the profits you acquire is the difference between your opening and closing price. This difference will then be added or subtracted from your trading account. Please remember, you do not really own the currency you buy physically or virtually so you do not have to deliver the currency that you trade.

Spot trading, however, requires the actual exchange of currencies by an electronic system or physically. What this means is if you buy or borrow a currency you would either receive interest or be required to pay via real currency notes.

Technical analysis is a technique that requires the use of charts as a tool for generating informed trading decisions. By analysing the volume and price movements provided by this chart, Forex traders can predict how weak or strong a particular currency is and prepare for future or movements.

There are a lot of useful learning materials that are available online and most of them are free. You also have access to current real-time market information from sources such as Daily Effects or Bloomberg.

While basic information on Forex trading or even technical analysis techniques and advanced fundamental analysis advice is readily available, please check to ensure that the source of this information can be trusted. If it comes from a financial service provider, then check to see if they are licensed.

You can also get familiar with the trading process and techniques that work by practising with play money in the demo accounts offered by some trading platforms. This will help build your skills and confidence before you attempt to make real money. This way you will avoid losing money as you move through the learning pitfalls towards an intermediate and expert trader.

Another alternative is for you to get training from experts traders with a proven track record of market successes and years of experience.

With conventional stock and equity markets, most investors who trade in futures and stock options would require a broker to act as an agent in the transaction. The broker is taxed with taking the order to an exchange and executing it according to the customers’ requirements. They then pay the broker a commission for buying and selling the trades on behalf of the customer.

Forex trading market however doesn’t have commissions because most investors do the trading by themselves. As FX is a principal only market, Forex trading companies are dealers not brokers. Dealers offset the market risk by serving as a third party to the investor’s trade. They do not require a commission but make their money through the market spread.

With FX, the investor cannot attempt to sell or buy in on an existing bid as is commonplace in most exchange-based markets. There is also no additional fee or commission to be paid by the investor once the spread is cleared. So every single profit acquired goes to the investor.

Dealers are required to match and surpass the market spread and this makes gulping difficult in Forex trading.

A Forex trading plan can not be proven by some short term profits. To guarantee long-term success, results must be significant and consistent for a long period. Please note, a strategy that has only worked a couple of times is just a theory. If your trading account shows profit on a base currency with a second currency, but not on other currency pairs, or when you trade support and resistance levels but not candlestick patterns, then it may be that you just need to refine what you trade to have a profitable strategy.

There are lots of Forex books written on trading style, candlestick analysis, stop loss limits and futures contracts. Individual investors need to understand their own trading psychology and work out what works for them. That is the best way to develop a day trading strategy, to avoid high risk short term trading and to work with leveraged products to achieve gain capital.

Forex trading doesn’t take place in regulated markets as opposed to futures stock or option currency trading. It is also doesn’t have a central governing body. Therefore, there are no guarantees on trades and it has no panel registered to adjudicate disputes. All trades by members are made on credit agreements. What this means is that business in Forex trading is physically conducted over are a handshake.

For new investors who are used to the structure of exchanges like the Chicago Mercantile Exchange (CME) or the New York Stock Exchange (NYSE), the arrangement in the Forex trading market is weird. But you can be assured that this arrangement works.

Self-regulation has proven to be an effective tool to control the markets. This is because participants in the FX trading markets are forced to cooperate and compete at the same time . As an added bonus, reputable retail FX dealers in the United States are members of the National Futures Association (NFA) and are bound by an arbitration agreement in the event of disputes. If you intend to trade currencies using a retail FX dealer then you should only use member firms that are reputable.

Another unique feature of the Forex trading market is the ability to shut down a pair that is on a downward spiral at will. All you need to do is set a stop loss limit. There are no opt-out rules in Forex trading because there is no stock. You are also not limited by size as in futures. So you could hypothetically trade or sell a $100 billion dollars’ worth of currency if you have the requisite capital.

A trader is also free to act on information in any way they deem fit and we would not consider this insider trading like in most conventional mark trading markets. For instance, if a trader finds out from a client that knows the governor of the Bank of Japan or Bank of England, that the BOJ’s intends to raise its rates in the next meeting, the trader can buy as much yen as he wants.

In fact, because there is no such thing as insider trading in the FX market, European economic statistics like the German employment figures are often leaked days before the official release date and traders act on this information without being sanctioned.

This doesn’t mean that the Forex trading market is the jungle of the finance world but it is the most fluid and liquid market in the world (24 hours a day) and rarely has gaps in price.

Because of its sheer share size from North America, Europe and Asia, it is also the most accessible currency market in the world. Therefore, it produces substantial data that can predict future price movements.

Forex trading doesn’t take place in regulated markets as opposed to futures stock or option currency trading. It is also doesn’t have a central governing body. Therefore, there are no guarantees on trades and it has no panel registered to adjudicate disputes. All trades by members are made on credit agreements. What this means is that business in Forex trading is physically conducted over are a handshake.

For new investors who are used to the structure of exchanges like the Chicago Mercantile Exchange (CME) or the New York Stock Exchange (NYSE), the arrangement in the Forex trading market is weird. But you can be assured that this arrangement works.

Self-regulation has proven to be an effective tool to control the markets. This is because participants in the FX trading markets are forced to cooperate and compete at the same time . As an added bonus, reputable retail FX dealers in the United States are members of the National Futures Association (NFA) and are bound by an arbitration agreement in the event of disputes. If you intend to trade currencies using a retail FX dealer then you should only use member firms that are reputable.

Another unique feature of the Forex trading market is the ability to shut down a pair that is on a downward spiral at will. All you need to do is set a stop loss limit. There are no opt-out rules in Forex trading because there is no stock. You are also not limited by size as in futures. So you could hypothetically trade or sell a $100 billion dollars’ worth of currency if you have the requisite capital.

A trader is also free to act on information in any way they deem fit and we would not consider this insider trading like in most conventional mark trading markets. For instance, if a trader finds out from a client that knows the governor of the Bank of Japan or Bank of England, that the BOJ’s intends to raise its rates in the next meeting, the trader can buy as much yen as he wants.

In fact, because there is no such thing as insider trading in the FX market, European economic statistics like the German employment figures are often leaked days before the official release date and traders act on this information without being sanctioned.

This doesn’t mean that the Forex trading market is the jungle of the finance world but it is the most fluid and liquid market in the world (24 hours a day) and rarely has gaps in price.

Because of its sheer share size from North America, Europe and Asia, it is also the most accessible currency market in the world. Therefore, it produces substantial data that can predict future price movements.

Currency carry trading is one of the most popular trades in the FX markets. It is practised by both small retail speculators and large hedge funds. The carry trade is based on the associated interest that every currency in the world has. This interest rates are short-term and are set by the central banks of these countries; the Bank of England in the United Kingdom, the bank of Japan in Japan, and the federal reserve in the United States.

The carry trade concept is simple. A trader will go long on a high interest rate currency, making a purchase using a currency with low interest rate.

For example, in 2005, the NZD/JPY cross was a great pairing. New Zealand saw an influx of commodity demand from China and an increase in its housing market rate; this directly translated to an increase of its rates on the FX markets to 7. 25% and it stayed at that point while Japanese rate was at a steady 0%.

A trader who went long on the NZD/JPY would have gained 25 base points in profits alone. On a 10:1 leverage base, it would have produced a 7 to 2.5% annual return of interest rate differentials on the carry trade of the NZ/JPY with no appreciation from capital.

This example paints a better picture of why the carry trade is very popular in the FX market. Please be advised, the carry trade isn’t stable and is susceptible to a sudden downward spiral. We know this in the FX market as currency carry trade liquidation.

It happens when many speculators decided that a particular carry trade no longer has any future potential. Thus, every trader would seeks to exit their position immediately and once there are no longer bids, the profits on industry interest rate differentials are not enough to offset capital losses.

This doesn’t mean that you shouldn’t run a carry trade but it is always best to position yourself at the beginning of the cycle, this would allow you ride the movements of interest rates differentials.

The major liquid currency pairs that a Forex brokerage firm will trade in are divided into four majors and three commodity pairs. There are also exotic pairs, bitcoin and some other financial instruments available on some platforms.

The majors include

USD/JPY (Dollar/Japanese Yen)

EUR/USD (Euro/Dollar)

USD/CHF (Dollars/Swiss francs) and

GBP/USD (British pounds/Dollar)

The commodity pairs include

NZD/USD (New Zealand dollar/United States dollar)

AUD/USD (Australian dollar/United States dollar)

USD/CAD (United States dollar/Canadian dollar)

These currency pairs account for over 95% of speculative trading in the Forex market alongside currency pairs such as GBP/JPY, EUR/JPY, EUR/GBP and so on.

Given the limited number of trading tools, there are only 18 pairs and crosses that are actively traded. This makes the Forex market more concentrated than the conventional stock market.