A close eye on major economic releases and events is very crucial in forex trading because they set clear direction for various assets. Here in this article we are going to discuss the three most important fundamental events for the currency market.
A benchmark Interest Rate decision by a central bank is one of the most crucial events for the financial markets. The currency of a country may plunge if the central bank cuts or plans to cut its interest rate and vice versa.
For example, if the European Central Bank (ECB) reduces or indicates any plans of reducing its benchmark interest rate then a huge downward trend in the exchange rate of the euro may be triggered. Currency traders keep a close eye on monetary policy minutes and press conferences by the heads of central banks for any indication of future interest rate decisions.
The United States Federal Reserve, ECB, Bank of England (BoE), Reserve Bank of Australia (RBA), Reserve Bank of New Zealand (RBNZ), Bank of Canada (BoC) and Swiss National Bank (SNB) are some of the world’s most powerful banks, which means their interest rate decisions cause major volatility in the financial markets. You can see live exchange rates here.
Asset Purchase Programs, commonly known as Quantitative Easing or QE, are another major fundamental event for the forex market. The famous QE initiative by the Federal Reserve in 2008 worked successfully, helping to bring the US economy out of recession. The ECB also took a similar initiative recently and it plans to buy assets worth one trillion euros by September 2016 in a bid to bring the Eurozone out of low inflation and fragile growth. A currency trader must keep a close eye on the QE decisions because the currency may experience major depreciation if the central bank announces QE.
Nonfarm payrolls is a monthly job report released by the US Bureau of Economic Analysis on the first Friday of every month. The report indicates the number of jobs added by corporations over a period of one month. Generally speaking, higher nonfarm payrolls are considered positive for the US economy and vice versa. The report plays key role in policy making, as the Federal Open Market Committee (FOMC) makes interest rate and other vital decisions on the basis of job market data.
This was a brief introduction about the top three fundamental events for the currency market. Other major economic releases include Gross Domestic Product (GDP), Consumer Price Index (CPI), Retail Sales, Manufacturing Purchasing Managers Index (PMI), Reuters/Michigan Consumer Sentiment report, Services PMI, Housing Price Index, Foreign Direct Investment report, imports, exports, trade deficit, fiscal deficit and other similar reports. So it is advised to always consider these releases before entering any position.