The realm of forex trading is a diverse, inter-connected marketplace that brings together thousands of individuals from all walks of life, with the sole purpose of partaking in trade worth trillions of dollars every day.
In this vibrant and expansive marketplace, individuals can choose to adopt the veneer of a buyer or seller, depending on their preferences and interests.
Indeed, the forex trade is an intricate game that attracts all and sundry. But to be successful, it is important to comprehend the subtle details of macroeconomic trends that influence the risks and rewards of forex trading.
With that in mind, we’ll discuss the top 3 macroeconomic trends that will prove an effective arsenal for both seasonal and veteran forex traders in 2019.
Why Are Macroeconomic Trends in Forex Trading Important?
The forex market is highly influenced by a variety of macroeconomic factors. It is either the subtle or seismic shift of these factors that influence the decision traders will take in determining a currency’s value in real time.
Nevertheless, a country’s economic health is volatile and hence, there could a series of natural, political, and financial events that could undermine its economic stability. It is from this principle that we determine these macroeconomic trends to enlighten forex traders on current trends.
Capital Markets and Stock Markets
Global Capital Markets
The global capital markets are probably the most conspicuous factors used in determining the health of an economy.
Hence, it is vital to include global market updates as part of your forex news calendar
Indeed, a large number of economies are commodity-based and sector-driven, hence understanding the dynamics of goods such as metal ores and crude oil are of vital importance for any forex trader.
Especially crude oil.
In fact, it is predicted that the volatility of oil prices will be the norm in 2019.
According to a prediction done by the World Economic Forum, the average price for a barrel of oil will be $70.0 in 2019, a decrease from the $71.0 average predicted in 2018.
Nonetheless, historical trends have divulged that whenever there is volatility in oil prices, there is a subsequent negative rippling effect on other commodities. This creates a situation whereby there is a slow growth in demand with rising supply.
Moreover if oil prices rise, then gas prices rise. This means that basically every company will have to cater to the higher transportation costs of commodities, which will then affect their expenditure, as well as their market outlook.
Bond And Stock Markets
Another factor to consider is the bond and stock markets, which are highly influenced by interest rates.
On a global scale, interests rates have remained relatively low while transitioning into 2019; primarily because a large number of central banks are working to prosper their respective economies.
For example, the European Central Bank has a zero percent rate while the Swiss have a relatively low interest rate of 0.75%
Nonetheless, the Federal Reserve of the United States has been increasing rates, albeit at a relatively low pace; primarily because evidence has shown that the surprise and velocity of interest rates are vital in determining how traders react in the stock market.
Once a country finds steady economic growth, raising rates creates an ideal bullish scenario. However, increase in such interest rates are usually done carefully and at a subtle pace.
Another key trend is understanding trade relationships between key nations.
For example, in 2014, China rose to clinch the title of the world’s largest economy.
Nevertheless, the country’s economic growth has dropped down annually to 7 percent.
Interestingly, China and the United States are heavily involved together in a myriad of trade channels.
So when one country is affected economically, it affects the other.
Here’s a good example:
When President Trump imposed trade deficits to China in a bid to slow down their economy, it ended up affecting the stock market in the United States, making investors jittery.
Additionally, in terms of currency, any economic reforms that China takes part in has a monumental effect on the U.S. dollar value.
Indeed, China has always held a fixed peg with the yuan to the US dollar. In recent times, however, it has opted to lessen the stings to the yuan in order to be transformed into a global currency. The nation is also seeking to modernize the stock markets in China.
Last but not least, the political atmosphere of a nation today is completely vital in shaping the economic structure of a country
This, will in turn, affect the perception of its currency to the international community.
Indeed, forex traders are always monitoring political events and news to determine the government’s subsequent steps in handling the economic outlook of the country.
For example, when the Brexit vote was initiated, it severely affected the British pound (GBP) after the UK decided to exit the EU.
As a matter of fact, the British currency reached an all-time-low since 1985, affirming that monetary and fiscal policies spearheaded by the government are vital in the economic standpoint of a country.
In a nutshell, the forex market is highly influenced by macroeconomic trends that directly shape the value of its currency.
Hence, having a critical understanding of these macroeconomic factors will ensure a forex trader maintain his or her relevance in the fast-paced environment of forex.
Disclaimer: This content does not necessarily represent the views of IWB.