The Impact of News in the Forex Market
The financial markets including the Foreign Exchange Market is all interconnected. As such, news that affects a particular market or a region has a direct impact on the Foreign Exchange Market. If you are a trader and someone who makes a living trading the Forex market, you would want to ensure that you have direct access to the latest news releases. This can help you prepare for any events or news that might impact the market and therefore allow you to take the necessary action to protect your capital or even make some profits for yourself.
Impact of Monetary Actions by Central Banks.
The foreign exchange rate of a particular country's currency is closely related to the interest rates that is determined by the central bank of that country. As a general rule, the value of a particular currency increases when the central bank of that country increases its interest rates. For example, the Australian dollar will increase its value against the US Dollar when its central bank increases its interest rates. This happens because, traders and investors would prefer to buy a currency with higher yields and sell the counter currency with lower interest rates.
Another example can be seen on the 18th of September 2007 The Federal Open Market Committee (FOMC) of the US Federal Reserve cut interest rates from 5.25% to 4.75%. This immediately saw the EUR/USD appreciating in value as traders bought the Euro and sold the US dollar. In fact, the news of the decrease in US interest rates saw a reaction that was instant and strongly bullish for the EUR/USD.
Impact of Macroeconomic Releases and Reports on the Forex Market.
There is another type of news that can impact the Foreign Exchange market. It is the release of macroeconomic reports. One of the most important data to the Forex market is the release of the US quarterly GDP data by the Bureau of Economic Analysis. The GDP figure is important to the Forex market because it tells the market how strong or how weak the US economy is. A growing GDP would indicate that the US economy is doing fine and would generate more risk appetite trades which would mean the appreciation in value of risk currencies like the Euro, Pound and the Australian Dollar. A lower than expected GDP figure might impact the Forex Market in a different way as risk aversion sets in and traders would opt to buy safe haven currencies like the US dollar, the Swiss franc and the Japanese Yen. During the release of important macroeconomic data like the US GDP, you would often see strong price movements in the form of spikes and long bodied candlesticks.
Impact of Geopolitical Events on the Forex Market.
You should take note here that geopolitical events have a huge bearing on the Forex Market. Geopolitical events include political events, wars, global conflicts, terrorism, treaties between countries, trade embargoes, elections and event scandals. Currency rates respond to these events and it might even provide a catalyst for the market to change the prevailing trend. For example the possibility of a hung parliament in UK since 1974 led to the Pound losing its value against most currencies and notable the against the US dollar in the first half of 2010.
As such, if you are trading the Forex market and is somehow affected by the price action in the Forex market, you would want to take note of the factors that I have outlined in this article. It would at least help you to mitigate your risk and also allow you to understand the Forex market better.
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