Different fundamental news that move the markets

A Wealth of Knowledge

Yonela Ngulugulu and WikiVisor 8 Jun 2017

The forex market is is to a large extent affected by the fundamental news, these could be social issues, political instability/stability of a country, economic growth etc....


Fundamentals

There is no doubt that the Forex market is a news driven market. News release indicate to speculators the overall well being of the country's economy. Things such as Interests rates, GDP, Employment change, Trade Balance, Housing Data, CPI, PPI tend to have more impact on the markets than the other fundamental/economic news. So it is advised that one especially when trading lower timeframes, one should close their open positions due to the volatility of the markets when there are highly anticipated news. One will find that the markets tend to move even before the actual news release. So having an open position during the news is like swimming during a thunderstorm, not favourable condition for a trader. One's trades can either go from profit to a loss within a short space of time, or from a loss to a profit. No one knows what the news release are going to be like. either good for the pair or bad, so for this reason one should always consult their economic calendar each week and check if are there any news that may temper or mess with the trade set up one has spotted on the chart. It is always better to prepare in advance.

One thing to note as well is the impact that each news have on a currency pair. For instance, an interests rate decision will have more impact on a currency pair than a non farm payroll report. Interest rates are more consequential, they affect the perceived value of the currency pair. So an interest rate can only be determined by a country's central bank or Reserve bank in the case of south Africa. This is the rate at which banks borrow money from the central bank to use on its day to day basis. Central banks use interest rate as a tool to control inflation. Being that a too high interest rate encourages saving, and a too low interest rate encourages borrowing and spending.


GDP (Gross Domestic Product)

A GDP of a country is a monetary value of all goods and services produced in a country, usually measured quarterly. This is an extensive measure of economic activity and the key indicator of a country's economic well being. The more goods and services a country produces the well off it will be economically. It indicates growth in economic activity and output from different sectors.


Trade Balance

Trade balance is the sum of all imports minus the exports of a country. Being that, if the country imports more than it exports it is bad for the country's economy. The Trade Balance measures the change in value amongst exported and imported goods and services over a specific period. A country that has exported more goods and services than it has imported will have a position reaction from the market. However, there is no telling how the market will interpret the news. Sometimes although news are good for a currency the market may react differently to what the news are suggesting.


CPI

According to USA Bureau of Labour Statistics (internet source) the Consumer Price Index (CPI) measures the change in the cost of goods and services from the perspective of the end user. It measures the cost of a fixed basket of goods and services be it health care, food and beverages, housing, transportation, education, It is a basic way to measure changes in buying trends and the inflation of a country. A number of families take part in a survey of consumer expenditure. At which they detail their spending habits, for instance, how much money is spent on groceries, education, transportation and so forth. Also included are billed services provided by the government, water, sewage as well as taxes. CPI is an attempt to measure the increase of prices of these goods and services and or to measure the continuous depreciating or appreciating value of a country's currency. The less goods and services one can afford the lesser the value of money. For a more detailed in depth explanation one can visit this page.


Employment Change

Employment Change measures the difference between the number of employed and unemployed people. Job creation is a vital indication of consumer spending. A higher than expected reading should be taken as good/bullish for a currency pair, whereas a lower than expected reading should be taken as bad/bearish for a currency.


PPI (Producer Price Index)

The Core Producer Price Index (PPI) measures the difference in the selling price of goods and services sold by manufacturers and producers, apart from food and energy. The PPI measures price differentials from the seller's vantage point. When producers pay more for goods and services, they are more probable to offset the higher prices to the consumer, therefore PPIs are deemed to be a leading signal of consumer inflation. According to USA Bureau of Labour Statistics PPIs measure price change from the perspective of the seller. This contrasts with other measures that measure price change from the purchaser's perspective, such as the Consumer Price Index (CPI). Sellers' and purchasers' prices may differ due to government subsidies, sales and excise taxes, and distribution costs.