Forex Trading: Key Events That Influence the Market

The foreign exchange (forex) market is highly volatile and sensitive to the effects of macroeconomic factors and events that take place in the economic calendar. An economic calendar is a vital tool to implement when investing in the forex market, as it identifies significant dates within the year that could affect movement and change the infrastructure of the market as a whole. The market could be affected by a multitude of events, whether these be scheduled events, like a nation’s annual meeting or an unforeseen event, like the COVID-19 pandemic, for example.

By keeping well informed upon the events that could influence the market, you can minimise the risk when investing in forex. You can speculate on the value of currency pairs, and gain access to an economic calendar on an online trading platform like plus500.co.uk, for example, to aid in your decision making and allow you to make well-informed predictions. We will uncover some of the most noteworthy events that could influence the market, so if you’re thinking about entering the world of forex, keep reading.

Macroeconomic and Geopolitical Events

As we’ve been reminded in the last twelve months by the coronavirus pandemic, the world is constantly under threat from events that are out of our control. Macroeconomic and geopolitical events can completely change the conditions of the forex market. These include: wars, elections, pandemics, monetary policy changes – all of which could trigger an increased urgency to trade and significantly affect the volatility of the market.

At times where nations are experiencing increased geopolitical risks, specific currencies are often at greater risk of losses than others, depending on their nature. Commodity currencies are usually most closely affected. This is because geopolitical events tend to have a negative effect on the economy and create an increased demand for raw materials and many goods.

Elections and Political Events

As previously stated, elections can have a direct influence upon a country’s currency and therefore, disrupt the forex market. For example, if an elected party is conservative, they may be less tentative in terms of spending, as opposed to a democratic party who are likely to have a more active approach towards the country’s expenditure. Inevitably, this will increase the market’s volatility and affect trader’s decision making.

Non-Farm Payrolls

Each month on the first Friday, the Non-Farm Payrolls are released. This is a report, released by the US, detailing their official employment data. This monthly event can have a direct influence upon the forex market because it shows how their economy is fairing at that time and the level of their interest rates. Interest rates will affect trade significantly, for if the rates are high, foreign traders are more likely to be interested and demand for the dollar will increase. Whereas, demand for the dollar will decrease if employment rates are lower.

Federal Funds Rate (FOMC)

Another notable event that can influence the forex market, is a meeting that the Federal Open Markets Committee (FOMC) conducts annually. This meeting takes places eight times throughout the year to configure the US monetary policy. An alteration of the federal funds rate by the FOMC can influence the forex market because it has a direct impact upon the US dollar. Since the dollar is one of the most influential economies within the forex market, this can change the landscape of the market and increase volatility.
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By understanding the events that can influence the forex market and employing an economic calendar to help you to keep track of these events, you can make informed predictions which will strengthen your trading strategy.