The most popular means of trading on the forex market is via technical analysis. However, this trading via trends is not the only method to make money; one can use fundamental analysis as well. Fundamental analysis looks at the influence of global events and bases trading on this forex news. News is a tool many traders use to speculate about movements within the market determining which currencies to trade. However, it is never as simple as it seems and is recommended to the more experienced traders.
Determining the Important Forex News
While all news is important, there are particular types which do not affect the forex market at all. In order to interpret the influence of forex news on trading it is necessary to identify what news is relevant and what is not. Many new traders are unable to distinguish the wheat from the chaff, as this is a practical skill one develops over time in the trading market. As many will see there are three primary types of forex news releases which have great influence over the forex market namely retail sales figures, the rate decisions of central banks, and news reports regarding employment rates.
How You Trade with the News
The direction of the news is rarely considered until one has to analyse it. In the forex trading market one will discover that forex news can be traded both proactively and reactively, but you must have a strong understanding of each in order to be successful. When trading proactively the trader must have the insight to guess what will be relevant. When trading reactively the trader will see how a world event has already affected the market. Reactive trading is the more popular of the two as it relieves the individual of any unstable speculative work.
Using the Employment Rates
The positive or negative economic outlook of a country varies according to the employment rate. A strong, stable economy will usually present with a good job market with high employment rates. However, should the advantageous job market fall this will lead to a weakening economy. Each financial quarter countries release PMI reports which detail their employment rates. If the employment section has risen from the last report, the market will be favourable.
Using the Retail Sales
It is common knowledge that consumer spending affects the economy and influences the currency prices on the forex market greatly. If the consumer spending and retails sales prices are too high one can be assured there will be economic growth for that country. Economic growth leads to currency strength and high foreign exchange rates. However, if the consumer spending is low the currency values will more than likely decline. The best way to validate this information is to correlate retail figures across a range of sources.
Using the Consumer Prices
In order to begin analysis of the forex market one should look at producer prices. These producers will measure inflation at wholesale levels and are usually reported before consumer prices. All these reports are maintained by central banks in order to keep a record of the stable or fluctuating prices.