Factors That Affect the Forex Markets in the Short Term
Posted by: Ahmad Hassam / Category: PokerThere are two types of forex traders. One type of traders depends on fundamental analysis in trading forex. The second type of traders depends on technical analysis in trading forex. Whether you are a fundamental trader or a technical trader, you should not underestimate the importance of economic data in shaping trading strategies.
USD is the most important currency in the world. 90% of currency transactions are done in USD. In almost most of the currency trades, USD is either the base currency or the counter currency.
Choosing the right currency pair to trade is very important for you. USD is the most important currency and most probably you will be also trading USD most of the time. You should know that the release of certain economic data has significant and lasting impact on USD.
You should know as a forex trader that currency markets reaction to the release of different economic data with time also changes. Some years back, US GDP figures used to be important for US Dollar but dont have much impact in recent years.
EUR/USD is the most liquid pair in the forex markets. The release of Nonfarm Payrolls (NFP) on the first Friday of every month is the most volatile day for this pair and other pairs involving USD as a base or counter currency.
Similarly, the release of US housing sales number every month has become very significant for USD in the recent years. Previously, forex markets used to give more importance to US Trade Balance.
Range traders like to trade when the currency pair they are trading tends to range. If you are a range trader who wants to scalp for a few pips every time you trade, you should avoid the day NFP data is released for trading. This is a highly volatile day for the markets.
However, if you use breakout trading as your trading strategy, understanding which economic data is expected to be released on a particular day can help you in your trading. You should plan your trading strategy in accordance with the significance of the economic data to be released.
In short, knowing what economic indicators move the forex markets most is very important for you as a trader. It is important for you to understand which data the market deems important at any point in time.
Knowledge of which economic data causes knee jerk reaction in the currency markets and which economic data usually has lasting reaction in the currency markets is also important for your trading success.
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