KEY FUNDAMENTALS AFFECTING USD, EUR & JPY

USD

• Federal Reserve Bank and their governor: the US Central Bank are in charge of making monetary policies in order to achieve stability in the economy. Market experiences a move when the president of the bank is giving a speech. Activities of the Bank has effects on the economy as a whole and should be watched.

• Federal Open Market (FOMC): It is a committee of 12 members which includes president the Fed, members of FOMC; through their voting they makes decision on monetary policy. Like announcement on interest rate.

• Interest rates: Federal fund rates is a the type of interest rate that makes more strong impact in the financial market when it is announced and the most important. Discount rate is the interest rate charged on commercial banks for emergency liquid purposes. The higher the rate of interest, the solid the currency which gives a buying opportunity to traders. Lower interest rate suggests a weakening economy and a sell opportunity for the traders.

• Economic data: like non-farm payroll, CPI, PPI, GDP, housing starts, housing permits, consumer confidence and so on have tremendous impact on the dollar.

• Stock market :popular market indices like Dow jones, Nasdaq, and S&P 500 influence the Dollar. The most influential is the Dow Jones. When these indexes are on the positive territory the dollar will more likely go up but when negative (down) the dollar will go down. The USD has a positive correlation with the US stock market indices. It is called a carry trade.

• Cross rate effects: a currency can be affected by another currency pair . For e.g. when the exchange rate of GBP/CHF is really down due to bad economy indicator affecting pound. There can be effect in GBP/USD when the pound is sold and USD is bought. This situation can occur also with EUR/USD, when the EUR economy is weak, it will be a boost for the dollar making people to buy the USD.

EUR

• Economic and political events in the Euro zone: the countries that made up the EURO ZONE are twelve in number, namely: France, Italy, Germany, Netherland, Belgium, Luxemburg, Spain, Austria, Greece, Finland, Portugal, and Ireland.

• Euro central banks and CB Governor: these central banks are responsible for making monetary policies that will stabilize the economy of countries in this zone. There are selected governor s which their speech can move EUR currency by name: Jean Claude Trichet, Erust Welteke, and Italy respectively. If you have gone through the economy calendars from websites like: Forexfactor.com, you will see at times written, "Trichet speaks" as one of the eco-event. This speech moves the market.

• Correlation: EURO has a negative correlative with CHF meaning that when EUR/USD is up expect USD/CHF to be down.

JPY

• MOF (Ministry Of Finance) is the sole institution which their statements gives an impact on the JPY. They are in charge of foreign exchange policies. They announces the interest rate which has a good move on the currency.

• BOJ: have complete control of monetary policies through their governor. Their speech gives clue on the pace of the economy thereby providing trading opportunities for the traders.

• Stock Market: Nikkei is one of the popular stock market in Japan and has a positive correlation with the JPY.

• Cross rate effects: other currencies like USD, EUR, GBP, also affects the JPY. For example when there is a positive data released on USD, this will cause USDJPY to move in uptrend. This means that as a result of the news released on USD people are selling the JPY at the same time buying Dollar.

CLEAR UNDERSTANDING OF MARKET DIRECTION/MOVEMENT IN FOREX

Being that the essence of this blog site is to relate foreign exchange trading in a more easier way, I will be giving you lay man’s approach for a clearer understanding of the way market moves in the forex market.

Unlike any other financial markets, foreign exchange market is traded in pairs
It is made up of two currencies as a pair which represents the financial instrument. We have 8 major currencies which are: USD, EUR, JPY, GBP, CAD, AUD, CHF and NZD. When you bring two currencies out of this list and join them together, you will have our investment instrument.
USD + EUR = EUR/USD
USD + CHF = USD/CHF
AUD + GBP = GBP/AUD

Having two currencies as our financial security means that, there are two different economies involved in each pair. That is in USD/JPY; we have USD representing the US economy and JPY representing the Japanese economy. In EUR/USD, we have EUR from European economy and USD from US economy. Therefore the market movement of this pair “EUR/USD” is determined by what is happening in the European economy and the US economy as well. That is the economic condition of this two different economies good or bad will determine the direction of the currency. When the economic condition of US economy is bad, it means that the US dollar is weak in this sense you will be selling it and vice versa. The simple general fundamental rule is to buy the stronger currency and sell the weaker currency.

Among the two currencies making a pair, we have the counter currency and base currency. The first currency among the pair is the base currency while the second currency is the counter currency. In the pair EUR/USD for example, the EUR is the base currency while the USD is the counter currency. Also in the pair USD/CHF, USD being the first currency in the pair is the base currency while the CHF is the counter currency.

Understood? I hope so, and then let’s proceed.

When a sell order is issued to your broker to sell a currency pair, it means you are selling the base currency (i.e. the first currency in the pair) and at the same time buying the counter currency. Confused? No need to be, just know that when you place a sell order in your broker’s platform to sell Eur/Usd it means you are selling EUR and at the same time buying USD in exchange. When you place your buying order to buy EUR/USD, you are actually buying EUR being the base currency and at the same time selling USD being the counter currency in that pair.

Bringing this lesson practically, if an economic news is released in US economy signifying that the economy is really in a good shape, As a good forex trader, I will be buying the USD as a stronger currency.
This will be done by placing a sell order on EUR/USD, a buy order on USD/CHF, a buy order on USD/JPY, and sell order on GBP/USD. Understand that when I place a sell