Investing in the Economic News
In general terms, most forex traders pay little attention to financial news because they think it is too difficult to understand. In fact, recent events on the world scene have made it much simpler for them to understand financial news than previously thought possible. In this article we’ll cover the best way to interpret financial news.
Generally speaking, most forex traders only pay close attention to economic news related to interest rates and the political system. News which indicates a stronger hawkish (hostile) central bank generally pushes for pairs higher in value, whilst news which indicates a more dovish (calm) central bank can depress the value of a particular pair of currency.
While most governments are still politically divided on the direction of their central bank, some are already moving in the same direction. Some of the political leaderships of countries such as Canada and Australia, as well as the EU, are already leaning heavily toward a hawkish stance. Meanwhile, a number of central banks including those of Japan and the U.S. have begun easing their policy in order to increase global economic stability.
This political situation also provides an opportunity to trade forex. If the central bank is going to ease policy or go through with its plan to do so, it will be easier to spot an upcoming trend in the market. If the political situation remains tense, traders should also expect a rise in the cost of the US dollar and a decrease in the price of oil.
The other big topic of economic news that is of interest to traders is the banking sector. Although the banking sector in the US has been hit hard by the housing crisis, many of the big banks in the country still manage to remain stable. Traders are also looking forward to the effects of the stimulus package proposed by President Obama which would enable the largest banks to obtain additional funds from the Federal Reserve in order to stimulate the economy.
The new rules will allow banks to obtain up to $600 billion from the central bank over the next ten years in order to help reduce the burden of bad debts and provide stimulus to the economy. The package will be implemented during the third quarter of this year. Although many analysts believe that the government will not be able to fulfill their promise of stimulating the economy in this way in the first two quarters of 2020, they are expecting a greater chance for the measures to be approved by the banking regulators.
Although many analysts expect the government stimulus package to cause a significant boost to the economy, others argue that the package has actually helped cause the problems by causing borrowers to be reluctant to extend loans. Therefore, the amount of money provided will ultimately be ineffective.
In addition to the economic news discussed above, traders will also be interested in the direction of interest rates. Although some of this news is of little concern for forex traders, other factors such as political developments in China, the political situation in Europe, developments within the banking sector and the strength of the euro may influence the timing of any future interest rate rises.
Other news which affects the timing of interest rates is that some developed markets, such as the United States, Canada and Australia have already seen major economies experience a recession. These countries will now suffer from a double-whammy in terms of the negative impact of falling rates on their economies and the weakening of the national currency. As a result of the negative impact of interest rates, investors have become less confident in buying safe assets, such as stocks and bonds.
This means that investors will be more concerned about the impact of the global markets on their own domestic economies, although many analysts believe that this is not necessarily a bad thing. The recent news of low interest rates around the world have encouraged more people to start saving more money and thus increasing the supply of funds in the economy. This has helped bring about a better balance between the flow of capital and the amount of goods and services that people can afford to buy.
Overall, there is plenty of economic news to keep forex traders excited and trading on the move. However, traders will also be keen to pay close attention to news reports which affect the direction of interest rates and the likelihood of further stimulus being introduced by the government.