Economics of Forex, Which Reports to Use and where to get them?

Beginner Questions
1

Hello all,

I am interested in trading Forex on a daily timeframe, perhaps placing a few trades a day with the view of closing them later in the same day or in a few days at the most.

So far i have learned a bit about chart patterns but want to know more about how economics effects Forex. I think that increasing interest rates should cause a currency price to increase and vice versa and that increasing inflation should should weaken a currency? Also that increases in Gold and Oil prices should in general move the opposite way from the dollar?

However there is just too many different reports and sources out there I have heard of (CPI , PPI, FedRate, Discount Rate, GDP advance and prelimenary report, Home sales, Durable Goods, Confidence index ect)

Can anyone recommend which of these I should be looking at, given the type of trading I am interested in and the best place to find these? What else should I be looking at?

Any help greatly appreciated

Kev

2

Can anyone help?

3

Hello,
You don’t have one kind of report affecting all currencies the same way, let me give you some exemples:

[ul]
[li]EUR/USD: You need to keep an eye on the ECB, which is depending on what they say, able to move the pair
[/li][li]USD/JPY: Politically sensitive, heavily influenced by US interest rates. The reason being the US to have a massive Governement debit held by Japanese governements and institutions. Also the japan economy is based on export, being 40% of their overall economy. So such reports definitely influence this pair.
[/li][/ul]

You’ve got the point I guess. The economical review of French export is not going to move the Euro, but the very same report can definitely move the JPY.

You need to study a country to know what affects the most its economy, and then match that to daily reports :wink:

Google will be your friend now that you have some ideas :slight_smile:

4

Ok thanks for that, what you have said made perfect sense. I realise that the US interest rate is very important in determining how USD will perform. However I’m not sure how this works on a day to day basis, does the actually US interest rate change on a daily basis which will indicate how the currency will perform on that day? Or is it a longer term indication? Also what is the rate I should be looking at in general? Is it the Fed rate, discount rate or Prime rate or anyother rates? Also where do I find out what the rate is now? Sorry if this is quite basic, I just don’t really understand it yet.

Thanks

Kev

5

Hi Kevin (I make the assumption the ‘Kev’ is ‘short’ for ‘Kevin’.

First let me make this clear: anything I ‘say’ in this post is not directly DIRECTED at you (I say this because I JUST KNOW that I’m going to have to ‘duck the arrows’ the moment I click on the ‘Post Quick Reply’ button)!!! Let me ‘qualify’ this statement though i.e. you alluded to a certain ‘style’ that you wish to trade. More detail in required in order for anybody to make any type of ‘judgement’ I’m sorry to say.

I’ve been ‘keenly’ monitoring your thread to see what ‘comes up’ but nothing ‘credible’ yet. So here’s my ‘take’ on the subject (and again: I know NOTHING about how you WANT to trade or what your ‘perceived trading style’ is so take whatever I say as ‘general comments’).

First and foremost let me say that there is a HUGE difference between TRADING and INVESTING which most, unfortunately, new traders, don’t seem to ‘get’. When TRADING you’re attempting to profit from short to shorter-term changes in price of an instrument (be it spot FOREX or equity futures and commodities). INVESTING is a totally different ‘animal’ (for want of a better word). With INVESTING you’re looking at the L-O-N-G term ‘picture’ of things ‘as a whole’. Somewhere ‘in the middle’ is a term that I believe I’ve ‘coined’ and that’s ‘TRADEVESTING’. In other words: you’re TRADING INVESTMENTS on long(er) term timeframes. A good example of this is Bank of America RIGHT NOW (I, almost exclusively, trade equity futures and commodities but the same applies to trading spot FOREX believe it or not). Bank of America’s shares ‘in their heyday’ traded at somewhere around +$50.00 per share (I’m not going to look up the exact ‘high’ because you’ll ‘get the picture’ by the time I’m ‘done’ with this post). They closed at somewhere around $6.46 on Friday. All of this appears to be irrelevant so far right??? Well here’s ‘the thing’. NOBODY KNOWS!!! Yes: Warren Buffet bought (went long) a couple of BILLION USD a few weeks ago (buying a huge ‘chunk’ of Bank of America stock) but, give or take a few cents on the share price, he’s probably at breakeven at this point in time (I forget the price that Bank of America was trading at the time but I do remember that is was somewhere in the region of where they closed on Friday). Here’s the point: Warren Buffet bought the stock at ‘X’ price KNOWING (and based on a LOT of EXPERT analysis) that the stock was undervalued (I could give you exact details but that would detract from the point that I’m trying to make here).

The point is this (and to answer your question directly): from what I gather you WANT to understand and ‘get a grasp’ of the underlying fundamentals (news???) of a particular currency pair. It’s NOT GOING TO HAPPEN (at least not in your favour in all probability). As I’ve noted on another thread today: people (‘qualified analysts’ or ‘Bloomberg Bests’) express personal opinions and, for the most part, they ‘call it wrong’. You are looking for (as I understand it) the best (and most ‘up-to-date’) news feed in order to profit from the outcome of the ‘news’ releases. Your ‘logic’ under NORMAL market circumstances or conditions is quite correct i.e. interest rate cut, stocks rise, interest rate increase, stocks fall. The problem: not in the history of the stock market has anyone seen the volatility in the stock market that we are seeing today (and for all of you that have your ‘bows and arrows’ ‘locked and loaded’ the stock market makes the spot FOREX market ‘move’ and NOT the other way around).

My point to you is this:

Unless you’re some type of ‘gifted individual’ (and even THEN you’d be ‘guessing at best’ as to what is going to happen to, for example, EUR/USD or GBP/JPY): by looking for the fastest and most ‘up to date news feed’ you’re going to be profitable then you’re very much mistaken. ‘Things change’. In ‘the old days’ your ‘observations’ ‘held true’ i.e. an increase in currency interest rates meant and drop in in the stock market. That’s changed FOR NOW. At some point in the future this will AGAIN ‘hang true’ but right now??? It’s most certainly nothing you can ‘count on’. The ‘golden rules’ that everyone is / was accustomed to no longer apply at this time. Moreover: you will be given advice (eventually) to NOT ‘trade around news times’. Well: do yourself a favour and take a look at an economic calendar. If you DIDN’T trade around ‘news data releases’ you’d be ‘out of the market’ most of the time and then, of course, what would be the point.

The ‘bottom line’ is this: we are ALL RETAIL traders (no matter WHAT market you’re trading). We are NOT FLOOR TRADERS (who are ‘right there where the action is’ and really DO have ‘the upper hand’). At best: we ‘trail behind’ what has ALREADY HAPPENED in the market (once again: be it spot FOREX or equity futures and commodities trading). That IS ‘the way it is’.

So after ALL of that: forget about trying to understand to ‘take into account’ the (POSSIBLE) interest rate decisions of the ECB or the FED or anybody else for that matter. Find a ‘mechanical’ or ‘technical’ trading system, take every single one of its signals (trades) and be profitable. Base your trades on fundamentals??? Well: ‘good luck with that’ (‘as they say in the classics’).

Regards,

Dale.

6

dpaterso Is right back in the day people used news events to trade and technical did not exist. In todays market there is so much new that COULD effect a currency or may not affect it. Even then you have to look at the other side of the trade and what is going on over there. Most news event today just cause a knee jerk reaction at best to the market. Very very few events today that I have seen at least hold any real long term change in the market and then thats if you are an investor and not a trader as already stated. Intodays market to many are looking at 15 min to 1hr charts how is intrest rates going to effect that. It goes up and down a long ways every day on those charts. Yeah intrest rates over long term can raise or lower a currency but on day to day you are better off being aware of when big new event might take place but trade what you see in the charts. Or invest and take stuff like that into account. My biggest example is study the NFP report and name in the past few years how many times did that report change and really change market sentiment. Not many. Intrest is long term they do not change that every day so that investing. I am sure some news traders will come in and thats fine I dont recall ever asking anyone to like me and I will not loose any sleep over it.

7

Hey thanks very much guys for taking the time to answer my questions and dpaterso especially for your in depth answer. I will take on board what you all have said.

I had a hunch that the interest rates would really only have a longer term effect at the moment but I wasn’t sure as I’ve read on several Forex learning sites saying that these are all important (annoyingly without mentioning on what sort of time scale they mean.)

I am demo trading at the moment and experimenting with different indicators and systems with mixed results, I understand that learning this will be a long term job and have no intention of risking a penny untill I am certain I know what i’m doing even if it takes a few years and clearly I have much to learn.

From what I understand from your posts then is that I would do better to trade using the indicators and chart patterns and trying to find a system that works and going with that? Without pushing my luck here do you have any advice on whats a good starting point for this? I mean I have learned about most chart patterns and what they are meant to mean and about most indicators and what they are meant to show and I have tried various combinations of these but seem to get inconsistent results.

Also one report I didn’t mention is the COT report, a few have said to me that this is very useful in predicting the weekly trend by showing what big players are doing in the futures market any thoughts on this?

Thanks

Kevin

8

metatrader gives you resumes of all news events as soon as they get out