Economic Factors That Affect The Forex Market

Forex is a truly global market, with buyers and sellers from all corners of the world participating in trillions of trading dollars every day. The fact that foreign exchange trading has become a globalized activity means that macroeconomic events play a greater role in foreign exchange than before. Below, we will discuss some economic trends and events that will be useful for those who are new to the forex market.

The Role of Macro Economics in Forex

The foreign exchange market is mainly driven by overall macroeconomic factors. These factors influence the trader's decisions and ultimately determine the value of the currency at a certain point in time. The health of a country's economic economy is an important factor in the value of its currency. However, the overall health of the economy is shaped by various events and information that can change every day, contributing to the 24/7 nature of the international foreign exchange market. Let's take a closer look at some of the factors that influence the economic position and drive changes in the value of their currencies.

Capital and Forex Markets

Global capital markets may be the most visible indicator of economic health, while the stock and bond markets are the most striking markets in the world. It is difficult to miss public information releases on the capital market because there is a steady stream of media coverage and up-to-date information about transactions of corporations, institutions and government entities. Extensive rallying or buying and selling of securities originating from one country or another country must be a clear signal that the future prospects (short or long term) for the economy have changed in the eyes of investors.

Similarly, many economies are sector driven, such as the Canadian commodity-based market. In this case, the Canadian dollar strongly correlates with the movement of commodities such as crude oil and metals. The oil price rally is likely to lead to a loonie appreciation relative to other currencies. Commodity traders, such as forex traders, rely heavily on economic data for their trade, so in many cases, the same economic data will have a direct impact on both markets.

The bond market is as important as what happens in the foreign exchange market because fixed income securities and currencies are very dependent on interest rates. Factors in price fluctuations in currency movements, which means that changes in returns will directly affect the value of the currency. Therefore, it is important to understand how government bonds in particular - are considered to be superior forex traders.

International and Forex Trade

Another key factor is the balance of trade levels and trends between countries. The level of trade between countries serves as a proxy for the relative demand for goods from a country. Countries with goods or services that are in great demand internationally will usually see an appreciation of their currencies. For example, to buy goods from Australia, buyers must convert their currency into Australian dollars (AUD) to make a purchase. Increasing demand for the AUD will put pressure on its value.

The trade surplus and deficit also show the competitive position of a country in international trade. Countries with large trade deficits are net buyers/importers of international goods, which results in more of their currencies being sold to buy other countries' currencies to pay for international goods. This type of situation is likely to have a negative impact on the value of the importing country's currency.

Political Impact on the Forex Market

The political landscape of a country plays a major role in the economic outlook of the country and, consequently, the value of the currency it feels. Forex traders constantly monitor news and political events to measure what movements, if any, might be done by a country in the economy. This can include steps from increasing government spending to tightening restrictions on certain sectors or industries.

For example, upcoming elections are always a big event for the currency market, because exchange rates will often react better to parties with a fiscally responsible platform and governments that want to pursue economic growth. A good example is the Brexit vote, which had a big impact on the British pound (GBP) when Britain chose to leave the European Union. The currency reached its lowest level since 1985 after voting because the outlook for the UK economy was suddenly very uncertain.

The fiscal and monetary policies of any government are the most important factors in making economic decisions. The central bank's decision that affects interest rates is closely monitored by the forex market for any major interest rate changes or future outlook.

Economic and Forex releases

Economic reports are the backbone of the forex traders manual. Maintaining an economic report calendar is very important to keep up-to-date on this fast-paced market. GDP is probably the most obvious economic report because it is the basis of a country's economic performance and strength. GDP measures the total output of goods and services produced in an economy. One important thing to remember, however, is that GDP is a lagging indicator, which means that it reports events and trends that have occurred.

Inflation is also a very important indicator because it signals a rise in price levels and a decrease in purchasing power. However, inflation is a double-edged sword, because many see it putting pressure on the currency because of weakening purchasing power. On the other hand, it can also cause currency appreciation, because it can force the central bank to raise interest rates to limit the increase in the inflation rate. Inflation is a problem hotly debated among economists, and its influence on currencies is rarely direct.

Employment rates, retail sales, manufacturing indices and capacity utilization also carry important information about current and expected economic strengths and currencies, functioning as a complement to the factors we have described above.

The Bottom Line

The forex market is ultimately driven by economic factors that influence the value and strength of a country's currency. The economic outlook of a country is the most important determinant of the value of its currency, so knowing the factors and indicators that must be considered will help you balance the competitive and fast-moving world of forex.

How to Choose a Forex Broker?

TopAsiaFx.com helps you compare and choose your preferred Forex Broker. We suggest keeping the following checklist in mind when making your decision:

• Is the Forex Broker regulated?
• Account Details: Ideally, your broker should offer either a selection of account types or some element of customizability. Competitive spreads and easy deposits/withdrawals are good indicators too.
• Number of Currency Pairs offered: The variety of currency pairs on offer, as well as the quantity, should be considered (the more of both, the better).
• Availability of Customer Service.
• Quality of the Trading Platform: look for a platform that is easy to use, straightforward and offers a collection of technical and analytical tools to enhance your trading experience.

Rank	Broker Name	Special Offer	Minimum Deposit	Spread	User Score	Maximum Leverage	Regulation	Start Trading
1	NordFX	55% Deposit Bonus	$10	0.0 Pips	96	1:1000	VFSC	Open Account
2	SGT Markets	Refer a friend $10	$500	0.0	95	1:400	IFSC	Open Account
3	OctaFX	50% Deposit Bonus	$100	0.4	94	1:500	IBC	Open Account
4	Exness	No	$1	0.1	93	1:2000	FCA,CySEC,IBC	Open Account
5	IC Markets	No	$200	0.0	92	1:500	ASIC	Open Account
6	Tickmill	$30 Welcome  Account	$100	0.0	91	1:500	FSA,FCA	Open Account
7	Axiory	$50 Deposit Bonus	$200	0.0	90	1:400	IFSC	Open Account
8	Justforex	100% Deposit Bonus	$1	0.0	89	1:3000	IFSC	Open Account
9	ThinkMarkets	No	$250	0.4	88	1:400	ASIC,FCA	Open Account
10	XM	$30 Welcome Account	$5	0.0	87	1:888	ASIC,FCA,IFSC	Open Account
11	FBS	$50 Welcome Account	$1	0.0	86	1:3000	IFSC	Open Account
12	HotForex	No	$5	0.0	85	1:1000	INC	Open Account