Successful trade on the Foreign Exchange (Forex) market requires research, some form of strategy and a lot of planning. Planning is an important part of trade because of the volatility of the market and the effects of the economic calendar.
The two are closely linked as events in the economic calendar can have a direct impact on the trading forecast of the Forex market in that particular year. Some of these events can have a more significant effect on trading than others, so planning ahead and acting accordingly can help to maintain trading momentum.
You can keep on top of these events by finding an online economic calendar which will indicate major economic events and the currencies that are most likely to be affected. Many contracts for difference (CFD) trading platforms provide easy access to this calendar. For example, with the online trading platform Plus500, forex trading, forex trading risks can be minimised, as traders can speculate on the value of currency pairs and easily employ an economic calendar to their decisions.
To find out which calendar events could have the biggest impact on Forex trading, read on.
The Central Bank – Interest Rates
The most notable factor which can determine currency exchange rates is global interest rates. On a monthly basis, the world’s Central Banks will meet to deliberate on interest rates. A higher interest rate can result in the rise in value of a currency, hence why this event can see the Forex market experience high levels of volatility.
Consumer Price Index (CPI)
The Consumer Price Index (CPI) is a measure of the average prices of consumer goods and services, and indicates levels of inflation in the economy. This measurement can help traders to predict the future of a currency. If inflation levels are particularly high or low, central banks are likely to alter interest rates, which can weaken their nation’s currency.
The rate of a country’s employment can provide a vital insight into how their currency is faring. A trader can infer a healthy economy from a high employment rate, and this usually means a stronger currency.
On the first Friday of the month the US releases a report containing their official employment data known as Non-Farm Payrolls (NFP). This is a key indicator of the state of their economy and the level of interest rates. If interest rates are high, foreign traders are more likely to take interest, which will increase demand for the US dollar. Inevitably, if employment has decreased, so too will demand for the dollar.
Gross Domestic Product (GDP)
Gross Domestic Product (GDP) is the measurement of the value of production of goods and services in a country, over a specific period of time. This also takes into account the amount that the country has spent on goods and imports.
This is the most significant indicator in providing an insight into economic activity. The process of compiling the data is lengthy and therefore gives trader’s time to process the direction of the market and make investment decisions accordingly. Keeping on top of GDP reports allows traders to check whether their investments are in line with the predictions of each quarter.
Geopolitical and Macroeconomic Events
Many of the factors that impact the Forex market are macroeconomic, which can completely alter the landscape of the market. One such macroeconomic event which we are all aware of is the Coronavirus pandemic. This global event has completely shifted the Forex market because of the direct impact that it has had upon economies worldwide.
Other events that fall under this bracket are elections, wars and monetary policy changes, which can all increase trade urgency and the volatility of the Forex market.
Federal Funds Rate (FOMC)
The Federal Open Markets Committee (FOMC) conduct a meeting eight times on an annual basis to construct the US monetary policy. If the FOMC has altered the federal funds rate, this will directly impact the value of the US dollar. Being one of the driving economies in the Forex market, this can affect its volatility.
Getting to grips with events that could impact the Forex market will help you to make informed trading decisions, and minimise the possibility of incurring losses. Using an economic calendar as a financial tool can also help you to stay one step ahead of these key global events.
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