How Macro-Economics Affects Forex?

As the prefix “macro” in the name suggests, macroeconomics deals with the bigger picture. It is not only one specific economy that traders consider, but the implications in the overall global picture. 
Forex market is primarily driven by overarching macroeconomic factors. These factors influence a trader’s decisions and ultimately determine the value of a currency at any given point in time.

GDP- Gross Domestic Product

This is the measurement for goods and services that were finished over a period of time.
GDP may be the most obvious economic report, as it is the baseline of a country’s economic performance and strength. 

The GDP is broken down into 4 categories:

1. Business Spending
2. Government Spending
3. Private Consumption
4. Total Net Exports

Inflation

Inflation is also a very important indicator, as it sends a signal of increasing price levels and falling purchasing power. 
This is the measure of increases or decreases in pricing levels over a period of time. Due to the immense number of goods and services available in a country, usually a grouping of these goods and services are used to measure changes in the pricing. Increases in pricing indicate an increase in the inflation rate which in turn can devalue that country’s currency.

Interest Rates

This is always a major focus in the forex market. Since the central banks mandate monetary policy and supply, they are the prime focus of investors and the various market participants.

An increase in interest rates is a good sign for investors as the currency rate increases due to the increased interest rate for the currency.

Employment Data

Every country releases employment rates periodically. This is another indication of how well the economy is doing. A high unemployment rate means the economy is not growing in line with the population of if the economy has stagnated.

How it relates to forex market trading: A high unemployment rate could lead to a depreciation in the currency value and thus decrease the forex rate of that currency.

Non-farm payrolls (NFP) is the name given to the data that pertains to the number of people who are employed within the US economy, and it is released the first Friday of every month by the Bureau of Labor Statistics. Strong decreases in employment indicate a contracting economy, while strong increases are perceived indicators of a prosperous economy.

Terms of Trades

Terms of Trade can be addressed as the ratio of Export Prices To Import Prices. If the country’s terms of trade are large, ie they have more exports than imports, the currency will always appreciate and there will be demand for it. This means its currency value will be greater than another country whose Terms of trade are lower in comparison.

How it relates to forex market trading: An investor may like to invest in a country whose exports are greater than their imports.

Capital Flow

Currency values can be significantly impacted by monetary flows that result from certain interactions between countries. When imports exceed exports, there is a tendency for the currency value to decline. Increased investments in a country can lead to the opposite result.

Retail Sales

The measurement of sales recorded by retailers over a period of time is a reflection of either increased or decreased consumer spending, depending on whether sales are up or down for the comparative period a year ago. This indicator gives market participants an idea as to how strong or weak the economy is.

Geopolitical Events

Elections, financial crises, monetary policy changes, and wars can influence the biggest changes in the Forex market. These events can either change and/or lead to reshaping of a country’s economy.

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Forex Trading Sessions

The forex market is open 24 hours a day, but that doesn’t mean it’s always active the entire day. You can trade 24/5 between 22:00 GMT Sunday – 22:00 GMT Friday. It’s time to learn about the different forex trading sessions.

What is a ‘Trading Session’?

A trading session is a period of time consisting of one day of business in a financial market, from the opening bell to the closing bell. Within the time frame of the trading session, all orders for the day must be placed, and buyers and sellers both participate in setting current market prices.

There are 4 main forex trading sessions with opening/closing hours based on the biggest financial centers.

When to Trade?

Time is money. For this reason, in the 24-hour forex market, timing is critical. Good timing produces good profits. Yes, but which are the best hours/times to trade?

The hot zone is between 13.00 GMT and 16.00 GMT. This is the time when the London and New York sessions overlap.

What makes these hours powerful?

• Volume- a large number of lots are sold/bought for a particular currency pair.
• Volatility –  the price moves at a great speed.

Because they reach their peak during these hours! During this time, the market is busy with active participants, currencies move very quickly, and the most important economic news is also published in this time period.

Open and close times will also vary during the months of October/November and March/April as some countries (like the United States, England and Australia) shift to/from daylight savings time (DST).

Now let’s look at the characteristics of each of the trading sessions.

Asian Session (22:00 – 08:00 GMT)

• The Asian session begins with the Sydney open (22:00 GMT) and ends with the Tokyo close (08:00 GMT).
• Japan is the world’s third largest forex trading center and even though we call it the Tokyo session, this is not the only busy forex hub during this period. Hong Kong, Singapore and Sydney are active players here, too.
• The most traded currency is the yen, of course, covering 16.5% of all forex transactions.

Now let us have a look at the main features of the Tokyo session:

• Approximately 21% of all forex transactions are carried out here
• Liquidity (i.e. currency sold without causing significant price movements) can be quite thin at times
• Because of this thin liquidity most currency pairs will trade within a range, especially if there is a big move in the preceding New York session
• Most activity takes place at the beginning of the session, as this is the time when economic news is released
• As during the Asian session economic news from Australia, New Zealand and Japan come out, you will most likely see stronger moves in pairs that contain JPY, AUD and NZD.

London Session (08:00-16:00 GMT)

• London is considered the capital of forex and although there are several financial centers all around Europe, it is London that attracts the main interest as the key financial center.
• Has a huge trading volume (over 32% of all forex transactions are carried out here)
• Has high liquidity
• Is the period with most market uptrends and downtrends
• Has lower spreads
• Volatility (i.e. overall price fluctuations) slows down a bit in the middle of the London period (for the simple reason that most traders are off for lunch) until the New York trading session starts
• Market trends may at times reverse just before the session ends as European traders decide to lock their profits.

New York Session (13:00-21:00 GMT)

• When the London session traders come back from lunch, the New York (US) session starts.
• Roughly 19% of all forex transactions are carried out here
• Big market-moving potential: 85% of trades involve the US dollar
• High liquidity in the morning hours when it overlaps the London session
• Most economic news reports are released at the beginning of the session
• Liquidity and volatility decrease during the afternoon hours
• Little movement on Friday afternoon + high chances for trend reversal in the second half of the day.

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Forex Insights-06-Jul-2018

The forex insights of major currency pairs are as follows:

1. EUR/USD:

   1. The pair EUR/USD is still likely to grow. Estimated pivot point is at a level of 1.1589.
   2. The euro came under pressure after Germany’s interior minister offered to resign amid an escalating row over immigration policy, throwing into doubt the future of Chancellor Angela Merkel’s coalition government.
   3. The euro had risen on Friday after European Union leaders reached a deal on migration, easing pressure on Merkel.
   4. The single currency was also pressured lower after U.S. President Donald Trump ratcheted up trade tensions with the EU, claiming overnight that it treated the U.S. very badly and was “possibly as bad as China, just smaller”.

2. DX- Dollar Index

   1. The dollar slumped against its rivals Friday, on mixed U.S. economic data showing the economy created more jobs than expected but wage growth undershot estimates.
   2. The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, fell by 0.34% to 93.81.
   3. The U.S. economy added 213,000 jobs in June, above forecasts for 200,000 new jobswhile the unemployment rate unexpectedly rose to 4%.
   4. The Federal Reserve’s view that a tighter labor market would lead to wage growth, increasing inflationary pressures, continues to be challenged as average hourly earnings grew slower-than-expected for the month.
   5. USD/CAD fell 0.33% to C$1.3090
   6. USD/JPY fell 0.14% to Y110.49, while USD/CHF fell 0.35% to 0.9898.
   7. EUR/USD rose 0.46% to $1.1744, while GBP/USD rose 0.34% to $1.3269.

3. GBP/USD

   1. Sterling is trading up 0.35% at around 1.3270 against the US Dollar after the US unemployment rate picked up to 4.0% in June from 3.8% in the previous month and the wages missed the expectations by rising 2.7% y/y.
   2. The headline NFP saw 213K new jobs added in June, but the overall tone of the report was softer.
   3. Sterling was trading as high as 1.3280 on Thursday after the Bank of England Governor Mark Carney said he sees the UK economy improving to justify for an earlier rate hike, but the refusal of Theresa May’s customs plan by the German Chancellor Merkel saw it falling to 1.3220.
   4. Despite the latest intense setbacks off the 2018 high, the medium to longer-term outlook for this major pair remains constructive. The pullback is viewed as nothing more than a healthy correction at this stage, with a higher low sought out ideally ahead of 1.3000 for the next major upside extension and bullish continuation.

4. USD/JPY

   1. The USD/JPY is trading 0.10% lower at around 110.50after the US NFP saw 213K new jobs added in June, but unemployment picked up to 4.0% and wages increased less than expected.
   2. The ongoing trade war between the US and China heats up, with the first volley of US tariffs on Chinese, but has been largely priced in with little effect on the market.
   3. The 4 hours chart for the pair shows that it holds above horizontal moving averages, with technical indicators posting mild advances above their midlines.
   4. Short-term direction, however, will depend on the outcome of the report. The greenback can recover ground on a better-than-expected NFP headline, combined with also better-than-expected wage growth.
   5. In such scenario, the USD/JPY pair needs to advance beyond 111.00 to extend its advance up to 111.40, en route to the 111.80/90 region. Below 110.15, on the other hand, as  a result of a disappointing report, the pair can fall down to 109.50.
   6. The major pair has put in a decent recovery out from 2018 low. However, overall, the medium-term picture still remains bearish and there is risk for another topside failure that leads to a drop back down below the current 2018 low around 104.60.

5. AUD/USD

   1. The AUD/USD pair advanced to a fresh two-week high of 0.7445 after the mixed NFP report from the United States but struggled to stretch higher.
   2. As of writing, the pair was trading at 0.7425, adding 0.5% on the day.

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Forex Insight 19-June, Tuesday

This week News Sites are flooded with Trade War between US and China. U.S.-China trade-war concerns intensified after U.S. President Donald Trump threatened China with fresh tariffs. Following are the insight for the major Currencies:

The US Dollar

• The U.S. dollar rose to its highest level in nearly a year against its rivals, as U.S.-China trade-war concerns intensified after U.S. President Donald Trump threatened China with fresh tariffs.

• The U.S. dollar index, which measures the greenback’s strength against a trade-weighted basket of six major currencies, rose by 0.31% to 94.70 after trading as high as 94.94.

• EUR/USD fell 0.46%, while GBP/USD fell 0.60% as the latter pair continued to come under pressure ahead of the vote on the Brexit Withdrawal bill slated for Wednesday, and the Bank of England meeting due Thursday.

• USD/CAD rose 0.57% to C$1.3277 as oil prices fell heavily, weighing on the loonie, amid concerns major oil producers were set to lift output at OPEC’s meeting later this week.

The Great Britain Pound

• According to preliminary figures for GBP futures markets from CME Group, investors added more than 2.6K contracts to their open interest positions on Monday from Friday’s final 240,369 contracts.

• GBP/USD: Recent price action in Cable has been amidst rising open interest although volume decreased significantly.

• The likeliness of deeper pullbacks remains well on the cards with the next relevant level being the 1.3040 area, November lows.

The Euro

• European Central Bank (ECB) President Draghi spoke in Portugal today, emphasizing the need for patience in the timing of the first rate hike.

• The ECB met last week and announced an end to its bond purchasing program by the end of the year.

• The central bank surprised markets by moving to calendar-based guidance for rate hikes and communicated intentions to keep rates unchanged well into the summer of 2019. EUR/USD posted a single-day loss just shy of 2% as a result of the meeting.

• Last week’s one-day drop in the exchange rate patently changed the near-term technical outlook for EUR/USD, confirming a continuation of the bearish downtrend after a brief correction higher from a low posted in late May. On a weekly chart, the pair printed a bearish engulfing candle last week – this invalidates the prior morning star candlestick pattern, which is considered to be a bullish reversal pattern.

BEST CURRENCY PAIRS TO TRADE

Forex trading – or foreign exchange trading – is all about buying and selling currencies in pairs. For the buying and selling of currencies, you need to have information about how much the currencies in the pair are worth in terms of the other. This relationship is what defines a currency pair.

A currency pair quotes two currency abbreviations followed by the value of the base currency based on the currency counter.

MAJOR BEST CURRENCY PAIR

The US dollar is the preferred reference in most currency exchange transactions worldwide. It is the dominant reserve currency of the world.

The following are not necessarily the best Forex pairs to trade, as they are the ones that have high liquidity and occupy the most foreign exchange transactions:

• EUR/USD (Euro – US dollar)
• USD/JPY (US dollar – Japanese yen)
• GBP/USD (British pound – US dollar)
• AUD/USD (Australian dollar – US dollar)
• USD/CHF (US dollar – Swiss franc)
• USD/CAD (US dollar – Canadian dollar)

The values of these major currencies keep fluctuating according to each other as trade volumes between the two countries change every minute. These pairs are naturally associated with countries that have financial power, and the countries with a high volume of trade conducted worldwide.

BEST CURRENCY PAIRS ANALYSIS

Let’s take a detailed look at the currency pairs below:

USD/EUR OR EUR/USD – This can be considered the most popular currency pair. In addition, it has the lowest spread among modern world Forex brokers. The best thing about this currency pair is that it is not too volatile. If you are not in a position to take any risk, you can think of selecting this as your best Forex pair to trade, without it causing you too much doubt in your mind.

USD/GBP – The profitable pips and possible large jumps have contributed a lot towards the popularity of this currency pair. However, you need to keep in mind that higher profits come along with a greater risk. This is a currency pair that can be grouped into the volatile category.

USD/JPY – It is associated with low spreads, and you can usually follow a smooth trend as compared to other currency pairs. It also has the potential to deliver exciting profitable opportunities for traders.

WHY TO INVEST IN:

• Largest Trading Volume
• Highest Liquidity
• Lowest Spreads (Typically <2 Pips)
• Best Daily Movements

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