Forex / Cryptos
Recognising the Development of Major Economic TrendsFebruary 23, 2016
Due to the interconnected nature of the world’s media and foreign exchange markets, it is not so much what events are important on the economic calendar for forex analysis to profit from movements in the market.
Every trader has already performed varying degrees of fundamental analysis to react to whatever is released on the economic calendar by all significant entities, both from the public and private sectors.
What is critical is recognizing which major economic trends are developing from important events on the economic calendar and actions by government officials.
Jobs for the Boys
At this time, and under the shadow of the 2008-inspired recession, and – indeed – for the foreseeable future, the policies and words of global central bankers will continue to be under the spotlight, even if somewhat ignored by economic calendars. Thus, based on the FED’s Quantitative Easing III program, which hinges on the employment rate in the United States, the job rate in the United States will be crucial for forex traders.
The recent jobs report from the United States that topped analyst expectations was very bullish for the US Dollar.
Before the Friday jobs report in the United States that was so bullish for the Greenback, Esther George, President of the Kansas City Federal Reserve Bank, released a prepared speech for an upcoming event that supported an ending to Quantitative Easing III, the open-ended acquisition of $85 billion in Treasury Bonds and mortgage-backed securities by the Federal Reserve in an effort to maintain a low interest-rate environment.
Consequently, the US dollar fell, only to rally 2 days later on the back of a bullish jobs report.
The Era of the Yuan & Trading Proxies
Thanks to its role as the second-biggest economy and the largest consumer of so many goods and services, economic reports and government announcements from China must be included in any fundamental analysis of major currencies.
For example, since China imports so many natural resources from Australia, the strength of its economy has a huge impact on the Australian Dollar.
During that same period, the value of the Australian Dollar increased, primarily thanks to the currency’s perception as a safe-haven asset.
Another reason was how strong the Chinese demand still was for natural resources and materials from Australia to feed its factories and machinery.
React Quick, Reach Big
Fundamental analysis rests largely on the monitoring of important economic calendar events, especially in long term analysis.
Bloomberg’s Kate Burton, in her book Hedge Hunters, writes that successful fund managers are those who sell off losing positions and hold on to successful ones.
The events from the economic calendar are vital for the forex analysis needed to determine which currencies to hold and which to dump.
For example, when FED head Ben Bernanke, at the August 2010 Jackson Hole summit, announced QE-3 – a $700 bn expansion of its balance sheet with treasury bonds, the USD plunged.
His was an admission that the US economy was too weak for bonds to be sold at an interest rate that would be low enough to generate a recovery – especially vis-à-vis the housing sector.
The following year, the US’ credit rating was downgraded by Standard & Poor’s.