There are two types of forex traders. One type of traders depends on fundamental analysis in trading forex. The second type of traders depends on technical analysis in trading forex. Whether you are a fundamental trader or a technical trader, you should not underestimate the importance of economic data in shaping trading strategies.
Over 90 percent of currency transactions are done against USD. USD is either the base currency or the counter currency in most of the currency trades.
Since majority of the currency trades involve USD, you as a forex trader will also most probably trade USD most of the time. Release of certain economic data has significant and lasting impact on currencies like USD.
You should know as a forex trader that currency markets reaction to the release of different economic data with time also changes. Some years back, US GDP figures used to be important for US Dollar but dont have much impact in recent years.
EUR/USD is the most liquid pair in the forex markets. The release of Nonfarm Payrolls (NFP) on the first Friday of every month is the most volatile day for this pair and other pairs involving USD as a base or counter currency.
Similarly, the release of US housing sales number every month has become very significant for USD in the recent years. Previously, forex markets used to give more importance to US Trade Balance.
If you depend on range trading as a trading strategy, you should avoid the day NFP data is released for trading. This is a highly volatile and jittery day for the forex market.
However, as a breakout trader, understanding of which economic data is expected to be released can help you in your trading. You should plan your trades in accordance with the importance of the economic data to be released.
In nutshell, understanding that some economic indicators move the forex markets most is very important for you as a trader. It is also important for you to know which economic data the market deems most important at any point in time.
You should also understand which economic data causes knee jerk reaction in the currency markets and which pieces of economic data will have lasting reaction in the currency markets.
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