Fundamental analysis is very crucial for identifying the long term direction of any tradable asset. Here in this article we are going to discuss the three most important fundamental events in forex trading.
Interest Rate Decision
Interest rate decisions by the leading central banks are of foremost significance for the financial markets. The leading central banks include the Bank of England (BoE), the Bank of Japan (BoJ), the Federal Reserve, The Reserve Bank of Australia (RBA), the Reserve Bank of New Zealand (RBNZ), the Swiss National Bank (SNB), the European Central Bank (ECB) and the Bank of Canada (BoC). The interest decision by these central banks incites major volatility in the respective currencies. Traders from all over the world keep a close eye on monetary policy meetings and press conferences in a bid to gauge the future monetary policy outlook of central banks. The interest rate decision by the US Federal Reserve is the most important as compared to any other central bank’s monetary policy because being a key driver for the US Dollar (USD) it may affect almost every currency and commodity.
Quantitative Easing (QE)
The Quantitative Easing (QE) decisions by the central banks also incite major volatility in the financial markets. For example, we saw a major slump in the US Dollar Index when the Federal Reserve announced a whopping $85 billion a month asset purchase program back in 2008. The US Dollar Index surged sharply when the Fed scaled back its asset purchase program at the end of last year. The same thing happened with the Euro when the European Central Bank (ECB) announced a huge 100 trillion Euro QE package for the ongoing year. Investors keep a close eye on QE related news from the central banks to gauge to long term direction of currencies.
Nonfarm Payrolls report shows the number of jobs added by the US corporations over a period of one month. It is considered one of the most volatiles and important news of the month. The Federal Open Market Committee (FOMC) officials keep a close eye on the outcome of nonfarm payrolls. Generally speaking, higher nonfarm payrolls are considered positive for the US economy and vice versa. The Federal Reserve’s interest rate decision is also believed to be linked to this news release, consistent positive outcomes of nonfarm payrolls may push FOMC policymakers to adopt hawkish monetary policy stance and vice versa.
Fundamental events play crucial role in forex trading, they set the long term directions for currencies and commodities so a forex trader must keep a close eye on fundamental events specially the monetary policy affairs and nonfarm payrolls as described above.