In today's lesson we are going to start a new module on what moves the forex market with a look at something which is known as trade flows.
As most of you are aware, when the market for something is allowed to operate in an unrestricted manner, price is set by the intersection of supply and demand. This means that if there is more demand than supply for something then price should rise. Conversely if there is more supply than demand for something, then price should fall. When supply and demand are equal then price should stay the same.
Currencies are no exception to this basic economic concept. At its core the value for a free floating currency is determined by the demand for a particular currency in relation to its supply. While this is a simple concept, determining what the supply/demand situation for a particular currency is, and trying to forecast changes in that equation, is a little bit more difficult of a proposition, and is what currency traders who focus on fundamentals try to ascertain.
With this in mind ,whenever anything happens such as an increase or decrease in the amount of goods and services imported or exported by a country, an economic news release, speech by a fed official, or geopolitical event, a currency trader will always ask the question: "How does this affect the supply demand situation, and therefore the value of the currency that I am trading?"
In order to keep this straight in our heads its best to think of things that can affect the supply/demand equation as fitting into one of two categories. The first, which we are going to discuss in this lesson, is what is known as trade flows. Trade flows are anything that involve money moving in and out of a country as a result of global commerce. This basically means money flowing out of countries as a result of goods and services being imported from other countries, and money flowing into countries as a result countries exporting goods and services to other countries.
When a country imports goods this adds currency of the importing country to the market and creates demand for the currency of the exporting country. The reason for this is that the goods are normally bought in the currency of the country where they are produced, so the entity importing the goods must exchange their currency for the currency of the entity that is exporting the goods.
As an example lets say that a US Corporation is importing 1 Million US Dollars worth of steel from a Canadian steel producer. In order to purchase this steel, the US Corporation must pay the Canadian corporation in Canadian dollars. As the US Corporation most likely does not have cash sitting around in Canadian Dollars, they will go out into the market and sell US Dollars and buy Canadian dollars.
As you can see here, the buying and selling of currencies which takes place as part of this transaction, creates an increase in demand for Canadian Dollars while simultaneously adding supply to the market for US Dollars. While a transaction of this size would not have much if any affect on the market, if this type of transaction was multiplied many times over, you could see how the two currencies of the countries involved in the transactions would be affected.
In general countries which rely heavily on imports will see a weakening affect on their currency as a result of this, all else being equal, and countries who have economies which are more export oriented will see a strengthening affect as a result, all else being equal.
That's our lesson for today. In our next lesson we are going to learn about the second category of market moving flows which is known as capital flows so we hope to see you in that lesson.
Actionable trading levels delivered to YOUR charts in real-time.
Mon 29 Oct 2018 A 12:30 US- PCE Deflator Tue 30 Oct 2018 A 08:55 DE- Jobless A 10:00 EZ- GDP A 12:30 US- CB- Consumer Confidence Wed 31 Oct 2018 A All Day Flash PMIs A 01:30 AU- CPI AA 03:00 JP- Bank Of Japan Decision A 09:00 EZ- Flash HICP A 12:15 US- ADP Jobs A 14:30 US- EIA Crude Thu 1 Nov 2018 A All Day Final Mfg PMIs AA 12:00 Bank Of England Decision A 12:30 US- Productivity A 12:30 US- Weekly Jobless Fri 2 Nov 2018 A All Day Final Service PMIs AA 12:30 US/CA- Employment
John M. Bland, MBA co-founding Partner, Global-View.com
Global-View Affiliate Program
We are starting an affiliate program to market some of our products.
Send me an email if you would be interested or if you know someone who would like to be an affiliate. Generous commissions payout for those accepted.
Put the word "affiliate" in the email subject line.
Veteran FX Trader, Max McKegg, forecasts all the Major currencies and the Australasians; providing Daily and Medium Term Trading forecasts to subscribers, who include large Banks the world over, as well as individual traders in more than 30 different countries.
looking for your first broker or do you need of a new one? There are
more critical things to consider than you might have thought.
We were trading long before there were online brokers. Global-View
has been directly involved with the industry since its infancy. We've
seen everything and are up-to-data with recent regulatory changes.
The Global-View Forex Forum is the hub for currency trading on the web. Founded in 1996, it was the original forex forum and is still the place where forex traders around the globe come 24/7 looking for currency trading ideas, breaking forex news, fx trading rumors, fx flows and more. This is where you can find a full suite of forex trading tools, including a complete fx database, forex chart points, live currency rates, and live fx charts. In addition, there is a forex brokers directory where you can compare forex brokers. There is also a forex brokers hotline where you can ask for help choosing a forex broker that meets your individual fx trading needs. Interact on the same venue to discuss forex trading.
The forex forum is where traders come to discuss the forex market. It is one of the few places where forex traders of all levels of experience, from novice to professionals, interact on the same venue to discuss forex trading. There is also the GVI Forex, which is a private subscription service where professional and experienced currency traders meet in a private forex forum. it is like a virtual forex trading room. This is open to forex traders of all levels of experience to view but only experienced currency tradingprofessionals can post.
Currency trading charts are updated daily using the forex trading ranges posted in the Global-View forex database. You will also find technical indicators on the fx trading charts, e.g. moving averages for currencies such as the EURUSD. This is another forex trading tool provided by Global-View.com.
The forex database can be used to access high, low, close daily forex ranges for key currency pairs, such as the EURUSD, USDJPY, USDCHF, GBPUSD, USDCAD, AUD, NZD and major crosses, including EURJPY, EURGBP, EURCHF, GBPJPY, GBPCHF and CHFJPY. Data for these currency trading pairs dating back to January 1, 1999 can be downloaded to an Excel spreadsheet.
Forex chart points are in a currency trading table that includes; latest fx tradinghigh-low-close range, Bollinger Bands, Fibonacci retracement levels, daily forex pivot points support and resistance levels, average daily forex range, MACD for the different currency trading pairs. You can look on the forex forum for updates when one of the fx trading tools is updated.
Global-View also offers a full fx trading chart gallery that includes fx pairs, such as the EURUSD, commodities, stocks and bonds. In a fx trading world where markets are integrated, the chart gallery is a valuable trading tool. Look for updates on the Forex Forum when the chart gallery is updated.
Global-View.com also offers a forex blog, where articles of interest for currency trading are posted throughout the day. The forex blog articles come from outside sources, including forex brokers research as well as from the professionals at Global-View.com. This forex blog includes the Daily Forex View, Market Chatter and technical forex blog updates. In additional to its real time forex forum, there are also Member Forums available for more in depth forex trading discussions.
WARNING: FOREIGN EXCHANGE TRADING AND INVESTMENT IN DERIVATIVES
CAN BE VERY SPECULATIVE AND MAY RESULT IN LOSSES AS WELL AS PROFITS. FOREIGN
EXCHANGE AND DERIVATIVES TRADING IS NOT SUITABLE FOR MANY MEMBERS OF THE
PUBLIC AND ONLY RISK CAPITAL SHOULD BE APPLIED. THE WEBSITE DOES NOT TAKE
INTO ACCOUNT SPECIAL INVESTMENT GOALS, THE FINANCIAL SITUATION OR SPECIFIC
REQUIREMENTS OF INDIVIDUAL USERS. YOU SHOULD CAREFULLY CONSIDER YOUR FINANCIAL
SITUATION AND CONSULT YOUR FINANCIAL ADVISORS AS TO THE SUITABILITY TO YOUR
SITUATION PRIOR TO MAKING ANY INVESTMENT OR ENTERING INTO ANY TRANSACTIONS.