Factors That Move the Forex Markets in the Short Term
There are two trading strategies. One strategy depends on fundamental analysis in trading forex. The second strategy depends on technical analysis in trading forex. Whether you use fundamental analysis or a technical analysis as a trading strategy, you should understand the importance of economic data in shaping trading strategies.
Over 90 percent of currency transactions are done against USD. USD is either the base currency or the counter currency in most of the currency trades.
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.
With experience, you will understand that currency markets reaction to the release of different economic data with time also changes. A few years back, US GDP figures used to be important for USD but they dont have much impact now.
EURUSD is the most liquid pair in currency markets. The release of Nonfarm Payrolls (NFP) data on the first Friday of every month makes this pair and other pairs involving USD highly volatile.
Similarly, a few years back the release of US housing sales number every month was not important for the currency markets. But it has become very significant for USD in the recent years. Currency markets used to give more importance to US Trade Balance in the past but they dont react to these figures much now.
If you depend on range trading as a trading strategy, you should avoid the day NFP data is released for trading. This is a highly volatile and jittery day for the forex market.
However, if you are a breakout trader, the knowledge of which economic data is expected to be released can help you in determining the size and confidence of the trade.
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.
You should also know which data causes knee jerk reaction in the markets and which pieces of data will have lasting reaction in the forex markets.
