There are a lot of different factors to consider when trading forex. They include everything from major, macroeconomic indicators such as the volatility of the marketplace and the derivative nature of currency trades to smaller variables that apply to a specific currency pair.
Then there’s the role of macroeconomics in forex. The truth is that the world’s largest financial market is driven by a number of overarching factors. These include everything from international trade to base interest rates and inflation, and understanding how the behavior of the aggregate economy impacts on currency prices is crucial for any trader.
In this post, we’ll take a snapshot of the current market and appraise the key political and economic events that are impacting on currency prices.
Brexit has impacted on the values of the GBP and the EUR since the referendum vote in June 2016, with the former continuing to trade in a particularly narrow and unforgivable ranges against its major rivals.
This has much to do with the threat of a no-deal Brexit, which could shave up to 3% off the UK’s growth forecasts for the next three years (as opposed to just 0.6% for the EU).
Of course, the GBP has rallied sporadically during periods when an amicable deal seemed more likely, and this was borne out recently following the recent announcement that the UK and the EU had finally reached an agreement.
However, Oanda noticed that the pound soon began to embark on a downward trajectory, after the markets realized that the deal lacked the backing of the DUP and is destined to be dead-on-arrival in Westminster.
2. U.S. Sanctions and the Threat of a Eurozone Recession
Talk of a global recession has gathered momentum in recent times, with regions such as the Eurozone particularly likely to experience a period of economic contraction.
This is not only the result of Brexit uncertainty, however, as a mixed industrial production data report has revealed that production in the region had fallen by 2.8% year-on-year.
At the same time, the U.S. has been given the go-ahead to imposed tariffs of up to $7.5 billion on selected EU projections, following a 15-year dispute between Boeing and Airbus that has seen the former lose money as a result of the Union’s trade practices.
The combination of tariffs and weak economic sentiment is weighing heavy on the value of the EUR, which continues to lose ground against the greenback.
3. The Ongoing Trade Dispute Between China and the U.S.
We close with the trade dispute between China and the U.S., which is the result of Donald Trump’s protectionist economic policies and ongoing practices between the two nations.
This has had a significant impact on both the USD and the Yuan, whilst also having a knock-on effect on the Chinese economy and the level of demand for certain commodities across the globe.
From a currency perspective, the situation is complicated by the relationship between the USD and the Yuan, with the latter loosely pegged to the former as part of a modified fixed exchange rate deployed by the Central Bank.
Most recently, we’ve seen the Yuan climb by over 1% against the USD, after Trump announced that ‘phase 1’ trade talks had been completed. However, the USD/CNH could tick back higher if the negotiations take a backwards step and long-term sanctions continue.
Forex Trading is Very Promising in 2019
The market for Forex is very promising. Traders have a lot of opportunities that they can capitalize off of in 2019. However, they need to be aware of the risks that they will face.