A close eye on major economic releases and events is very crucial in forex trading because they set clear direction for various assets. In this article we are going to discuss the three most important fundamental events for the currency market.
Interest Rate Decision
Benchmark Interest Rate decision by a central bank is one of the most crucial events for the financial markets. The currency of a country may plunge if the central bank cuts or plans to cut its interest rate and vice-versa.
For example, if the European Central Bank (ECB) reduces or indicates plans of reducing its benchmark interest rate, then a huge downward trend in the exchange rate of Euro may be triggered. Currency traders keep a close eye on monetary policy minutes and press conferences by the heads of central banks for any indication on future interest rate decisions.
The Federal Reserve of the US, ECB, the Bank of England (BoE), the Reserve Bank of Australia (RBA), the Reserve Bank of New Zealand (RBNZ), the Bank of Canada (BoC), the Swiss National Bank (SNB) are some of the world’s most powerful banks, therefore their interest rate decisions cause major volatility in the financial markets.
Asset Purchase Program, commonly known as Quantitative Easing or QE is another major fundamental event for the forex market. QE is an effective monetary policy tool for a central bank to deal with the consistent low inflation rate. The famous QE initiative by the Federal Reserve in 2008 worked successfully and it brought the US economy out of recession. The European Central Bank (ECB) also took a similar initiative recently and it plans to buy assets worth one trillion Euros by the end of this year in a bid to bring the Eurozone out of low inflation and fragile growth. A currency trader must keep a close eye on the QE decisions because the currency may experience major depreciation if the central bank announces QE.
The nonfarm payroll is a monthly job report released by the US Bureau of Economic Analysis on the first Friday of every month. The report indicates the number of jobs added by corporations over a period of one month. Generally speaking, higher nonfarm payrolls are considered positive for the US economy and vice versa. The report plays key role in policy making, the Federal Open Market Committee (FOMC) makes interest rate and other vital decisions on the basis of job market data.
This was a brief introduction about the top three fundamental events for the currency market. Other major economic releases include Gross Domestic Product (GDP), Consumer Price Index (CPI), Retail Sales, Manufacturing Purchasing Managers Index (PMI), Reuters/Michigan Consumer Sentiment report, Services PMI, Housing Price Index, Foreign Direct Investment report, imports, exports, trade deficit, fiscal deficit and other similar reports. So It is advised to always consider these releases before entering any position.