Markets move up and down all day long and some days can be very volatile. It is the discipline of Fundamental Analysis that attempts to study the reasons for the volatility.
Here are just a few of the areas that Fundamental Analysis looks at to determine why the Forex Markets are volatile.
Here are just a few of the areas that Fundamental Analysis looks at to determine why the Forex Markets are volatile.
Geopolitical events – War, Terrorism, Political Developments
Federal Reserve announcements – FOMC announcements and Beige Book
Employment data – NFP and Unemployment Percentage Rate
Inflation data – GDP, CPI and PPI
As you may or may not know, the market often responds with volatile price changes following the release and dissemination of major market data. With so much information to process in such little time and the market making large swings, it is easy to feel like you are well behind the curve. Fortunately there are ways to compartmentalize this seemingly insurmountable data in order to preserve your account equity in the face of uncertainty.
There are just a few things that you must realize in order to make heads or tails of it all.
The majority of market moving data is released at the onset of American trading, usually 8:30 am in New York.
The biggest releases are on the first Friday of every month (NFP and Unemployment).
The days before, of, and following the FOMC announcements are volatile.
Geopolitical unrest creates uncertainty about stability of exchange rates – uncertainty often translates into weakness in market leading currencies and strength in safe-haven currencies.
Additionally, I have to mention, the U.S. economy and in particular, the U.S. dollar plays a major role. There is another factor that plays a major role in the Forex Market’s volatility, namely:
Employment Friday
Employment Friday as its known in trading pits around the world is the day the U.S. government divulges its latest compilation of the previous month’s employment figures for the entire United States. The two components of the report that traders are concerned with are Non-farm Payrolls (NFP) and the Unemployment Rate (%).
The numbers are heavily scrutinized and the reaction is potentially very large and often instantaneous. All markets are impacted by the number from bonds, domestic and international, to exchange rates of countries like Denmark, South Africa and Norway, as well as international equity markets.
U.S. Currency – The Benchmark
You may be wondering: Why in a global market the data from one country moves the market the most? When the fact of the matter is that the U.S. dollar is the benchmark currency. This fact is known and accepted as fact on dealing desks all around the world from London, Frankfurt, Dubai, Hong Kong, Tokyo, New Zealand to Sydney and elsewhere. For that reason traders around the world are very much attuned to the Benchmark nation’s state of affairs with regard to economic data, political developments and various market moving tidbits.
Naturally of course due to information networks and globalization all of the nations of the world are interrelated to one degree or another indefinitely, therefore it is important for others to look to the leading and major contributing economies for clues as to how things are likely to play out in their own respective nations and currency.
