Key Market Movers in Forex Trading

Forex Trading: Key Market Movers You Should Be Aware Of!

Forex is a dynamic global marketplace, where trillions of dollars are traded every day by buyers and sellers from all over the world. With forex trading becoming increasingly a global activity, macroeconomic events worldwide often have a greater impact on market activity. The global forex market is largely affected by inflation, economic reports, and political stability, which are the significant market movers. In constant flux, currency values regularly fluctuate in value, opening up opportunities for traders to profit from volatility.   

Fundamentally, the forex market is driven by two primary factors: supply and demand. Consequently, both are influenced by the same thing: sentiment. Sentiment, however, is influenced by an endless list of market movers, which can run the spectrum from international news to data and other events. Since the forex market is open 24 hours a day, the moods of investors are highly responsive to a variety of events. Being aware of the key market movers and how they affect your trading outcomes is crucial to becoming a successful forex trader. 

What are Forex Market Movers – Meaning and definition!

The term “forex market movers” can be used to describe any event or fact that is capable of influencing the market and moving the market in one direction or another. 

There are several market movers for forex trading today that give direction and increase volatility over the course of the short term. Typically, before the release of the news, the exchange rate of a currency pair is relatively stable, and it starts fluctuating as soon as the news is made public.

Forex Trading: Key Market Movers

Modern-day forex market movers include news, events, and data releases that are capable of affecting the price of any particular financial nation’s currency. Market movers can have different impacts and scopes, and they can either occur as expected or as unanticipated surprises. 

Predictable market movers include macroeconomic data, which can be easily tracked on an economic calendar in precise days and times. There are a lot of traceable and predictable market movers, including macro data, central bank meetings and statements, quarterly corporate numbers, and political events. The ability to anticipate these situations is essential for every trader.

Sudden market movers generally occur once in a while. Unexpected crises, such as wars or pandemics, can lead to these sharp price swings. In addition, they can also be influenced by new information or black swan events. 

An event called a black swan usually has a negative impact on the financial market, causing investors to lose money abruptly. The reason for this is that black swan events are hard to predict.

What is the role of macroeconomics in forex? 
Overarching macroeconomic factors are the primary driving forces of the forex market. The currency value is determined by a combination of these factors that influence traders' decisions at any given moment. Currency exchange rates are influenced largely by the economic health of a nation. However, economic conditions can change rapidly depending on current events and new information. Keeping to a set of trading rules is the only way to survive!

How do market participants forecast forex movements? 

To get an idea about where the forex market is heading and which currency pairs to trade, two main types of analysis are used: fundamental and technical. In fundamental analysis, government policy, financial markets, the state of the economy, and monetary events are analyzed to determine how the price of currencies will be affected. The technical analysis, on the other hand, focuses only on price movements and predicting future movements in the forex market based on historical price charts and statistics. 

The fundamental analysis identifies the true value of a currency based on the external factors that drive price movements by identifying whether it is over- or undervalued. Instead of focusing on the price itself, it focuses on what impacts it. On the other hand, technical analysis focuses only on the price and disregards everything else as unquantifiable data, based on understanding supply and demand.

How do fundamental analysts spot market movers?

Today’s market movers include all the events that have the power to move the market in an unpredictable or short time period. We can divide the market movers into two broad categories: 

Positive or negative events: They can have both positive and negative effects on a particular market.

Events above or below expectations: News which is deviating from forecasts, increasing the upward and downward trend of an asset.

As far as fundamental analysis is concerned, there are three main market movers.

1. Economic Indicators:

Statistical data and data about the performance of a certain economic sector or economy are considered economic indicators. 

The following are some of the most important: 

  • Gross Domestic Product (GDP): The GDP measures an economy’s overall size over time, usually one year, by giving it a monetary value. We typically refer to an economy as that of a country, but sometimes we also refer to the economy of a region (e.g., South East Asia) or a city. An economic indicator alone is not very informative, as with many other economic and financial measures. Nevertheless, one can gain a lot of insight into the health of an economy by comparing GDP over time, such as over months, quarters, or years. 
  • Employment Reports: An economic indicator that shows the percentage of citizens who work or have jobs. As it contributes to economic growth, it is strongly correlated with GDP. A citizen’s employment is closely related to their production, consumption, and tax income. An indicator of employment is the unemployment rate. 
  • Debt-to-GDP Ratio: This is how much of a country’s GDP is accounted for by its debt. A country’s ability to pay its debts can be determined by this indicator. Low debt-to-GDP ratios generally indicate a healthy economy that produces and sells goods and services without accruing future debt. 
  • Public deficit: When the expenditures exceed the revenues or the state budget is negative during a financial year, it is known as a public deficit. 
  • InflationInflation is determined by an increase in the average price of goods and services over a prolonged period of time, which results in a decrease in money’s purchasing power. 
  • Consumption: It signifies an increase in demand for products and services. GDP increases with increased consumption, demand, and production. 

Here are some of the key European Economic Indicators: 

  • Eurozone CPI or Inflation in the Eurozone (EU inflation) – Quarterly and Monthly 
  • German Zew PMI or German Economic Sentiment Index – Monthly 
  • Monthly German manufacturing index 
  • Combined GDP of the member countries 
  • The unemployment rate in member countries 

Indicators that are important to the US Economy are: 

  • GDP or “Gross Domestic Product”, produced quarterly by the Department of Commerce based on annual or quarterly data. 
  • Unemployment or “Unemployment Rate”, is released monthly by the Department of Labor. 
  • NFP or Non-Farm Payroll, released monthly, is an indicator of economic growth. This report shows how many jobs were created in the non-farm sector in the United States during the previous month. American economic activity and health are reflected in this number. 
  • A monthly report published by the Federal Reserve on the manufacturing production of companies. 
  • Monthly data on consumption, or “Consumer Spending”, represents two-thirds of economic activity. 
  • The Department of Commerce releases monthly Home Sales data to measure consumer sentiment and new home purchases. 
  • Measures the health of consumption using “Retail Sales” published monthly by the Department of Commerce. This reflects retail sales growth. 

By keeping an eye on the Forex calendar, you can keep track of these economic indicators made public by local authorities.

2. Financial Indicators:

In a global context, financial indicators include central bank activity, interest rate trends, inflation, and so on. 

  • European Central Bank interest rate decision, or ECB rate decision – quarterly 
  • “CPI (Consumer Price Index)” is a monthly measure of inflation in the US 
  • Detailed information about central banks and their press releases 

Company-level financial indicators, on the other hand, illustrate how a company achieves and maintains a financial balance by providing an analysis of the performance of the company. If you are considering investing in stocks, this data can be particularly useful. 

3. Political Factors:

Market movers, such as political factors, are probably the easiest to understand and interpret. When a country is facing a political election, market movers will have a great impact on its economy. There will be a great deal of volatility in the financial markets during the weeks leading up to and following the US elections. 

Politics could also lead to market movements in the following ways: 

  • Tax policies 
  • Labour law 
  • Environmental law 
  • Trade restrictions 
  • Political stability 

In terms of previous points, trade restrictions are perhaps the most intriguing. The trade war between the US and China falls into this category and has impacted world markets greatly.

Identifying Trends to Predict Forex Movements

Patterns evolve into trends, which suggests that the latest move in the exchange rate might be the start of a longer-term trend that’ll last for a while, as per the usual trend cycle. 

Forex traders look for three types of trends: uptrends, downtrends, and sideways trends, which, as the names suggest, describe the direction in which the rate is moving. For example, if technical analysis predicts an uptrend, then the exchange rate has just begun to climb and will continue to do so. In addition, forex is traded as currency pairs, which means that an uptrend for one currency correlates to a downtrend for another. For example, GBP/USD traders can only gain if the dollar loses, or vice versa. 

Moving averages are one of the most widely used tools for identifying trends. 

  • Moving averages: A widely used forex tool for finding trends. By calculating the average exchange rate over a defined time period, the moving average smooths out historical price data. A 20-day moving average, for example, is the average rate over 20 days. Traders can filter out any sudden or unexplained movements that would distort historic prices by comparing the current rate to the average. 
  • Moving average convergence divergence (MACD): It is an average of a short timeframe and a long timeframe. When the short-term moving average crosses over the long-term moving average, traders are alerted. In general, if the short-term moving average surpasses the longer-term average, it indicates that exchange rates are on the rise. 

Moving averages are applicable in different time frames and are included in many trading strategies. The MA can also be used to identify resistance or support areas, and entry and exit points.

Using Sentiment to Predict Forex Movements

Last but not least, sentiment is what drives supply and demand, which affects exchange rate movements. A lower trading volume can suggest a soured mood, whereas an increase in volume can indicate higher levels of interest. The volume of a market, such as stocks, can also be used to determine market sentiment. 

Due to the fact that forex is traded over the counter (OTC), tracking trading volumes is nearly impossible. However, there are ways to overcome this problem. Despite a lack of volume data, the forex futures market provides insight into how traders feel about exchange rates in the future rather than now. When the price of currency futures differs significantly from spot prices, it could indicate whether sentiment is bullish or bearish. 

Using an Economic Calendar to Forecast Forex Movements

For forex traders, there is an easy way to stay up to date with developments and prepare for the major events that move currency prices, those that are scheduled anyway. Anyone who trades forex needs an economic calendar to know what economic and political events are likely to affect forex and other financial markets. 

AximTrade has an excellent economic calendar curated around forex trading, showing upcoming events you need to consider. This calendar outlines when the main economic data will be released and when other major events will occur, such as international political meetings or speeches from world leaders and central bankers.  

Considering that different economies are driven by diverse external factors; it is important to keep in mind that economic data that might be important in one country may not be relevant in another. Discover the Key Economic Data That Influence Exchange Rates, which are also important market movers, in order to avoid making costly mistakes when trading currencies.

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It is not advisable to enter the forex market without planning just because you are passionate about forex trading. In the same way, as with any other business venture, forex trading requires training. Beginners can learn the basics of forex trading by enrolling in the AximTrade forex trading course, which is designed to improve traders’ skills on both an analytical and practical level.

AximTrade’s full-fledged online forex course provides lessons from experienced traders to help people better understand market movers and familiarize themselves with better ways to trade forex.

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