In our last lesson we began a new module on the fundamentals of the forex market with a look at how traders who have an understanding of both technical and fundamental analysis are in the best position to be successful in the foreign exchange and other markets. In today's lesson we are going to continue our free forex trading course with a review of what we have learned up to this point so we can make sure that everyone has an understanding of the basics which they will need throughout the rest of this course.
As we now have a basic understanding of how trade flows and capital flows move the forex market, the next step is to look at each of the individual currencies we will be focusing on so we can gain an understanding of their backgrounds, and the makeup of their economies. Once we have an understanding of this it will become clear what fundamental factors are the most important drivers of individual currencies, and therefore what we as traders should watch for.
Before we get into this however it is very important that everyone has a sound understanding of how trade flows and capital flows move the forex market (which is covered in module 3 of this course) as well as the following concepts, all of which are covered in module 8 of our free basics of trading course located in the free course section of InformedTrades.com:
- We all need to understand what the business cycle is.
- The difference between monetary and fiscal policy.
- What a central bank is and how they go about changing interest rates. In module 8 of the basics of trading course we cover the Federal Reserve which is the central bank in the United States. While the central banks that we are going to be covering going forward may differ in how aggressive they are with monetary policy in relation to the Federal Reserve, the methods they use to conduct monetary policy, and the reactions of the forex market that monetary policy generates, is basically the same no matter what central bank you are looking at.
- The first currency we will be covering will be the US Dollar, so you should have a good understanding of the basic components of the US Economy.
I am going to give everyone 10 questions here that you should now have the knowledge to answer if you have been through module 8 of my free basics of trading course, and module 3 of this course. Ok so here we go:
1. If inflation is low and a Central Bank is concerned about recession, what would the expected monetary policy response be?
2. If inflation and growth are both high what would the expected monetary policy response be?
3. If a central bank raises interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?
4. If a central bank lowers interest rates, what affect if any is this expected to have on the currency of that country, all else being equal?
5. If a country's imports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?
6. If a country's exports grow and all other trade and capital flows remain equal, what affect would this have on the current account and what would be the expected affect on the currency if any?
7. If a country is a major exporter of gold and the price of gold moves up by 50% over the course of a year, what would be the expected affect if any on that country's currency all else being equal?
8. Japan is a major importer of oil and Canada is a major exporter of oil. If the price of oil goes up by 50% over the course of a year, then what affect if any should this have on the CAD/JPY currency pair all else being equal?
9. Traders who follow US Dollar fundamentals pay particular attention to any numbers which reflect the overall health of the consumer. Why?
10. The US Economy in the past was referred to as an Industrial Economy, now it is referred to more as a ________________ Economy.
Once the first person posts the right answers to all 10 questions I will send a private message to them via the forum to request the mailing address where they would like their free copy of Day Trading the Currency Market sent.
That's our lesson for today. In tomorrow's lesson we will begin a discussion on the fundamentals that move each of the main currencies we will be focusing on, starting with the US Dollar, so I hope to see you in that lesson.
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WEEKLY HIGH IMPACT NEWS: 29-Sep THU
23:30 JP- CPI 30-Sep FRI
06:00 DE- Retail Sales
08:30 GB- GDP
12:30 US- PCE Deflator
14:00 US- final Univ of Mich
The focus of trade remains on the European banking system. The price of DB has dipped today below EUR 10, down another 6.90% today. Fresh worries emerged Thursday after a report that ten hedge funds were reducing their exposure to Germany's largest bank.
Bank confidence issues cannot be allowed to fester. Quick action (this weekend?) is required. Worries about the stability of the system has seen the EURUSD correct lower. The U.S. 10-yr yield is closing the day at 1.536% -2.6bp.
The U.S. data calendar today (quarter-end) is relatively busy. Key items include: flash September Eurozone HICP and the U.S. PCE deflator. Central banks are all targeting inflation.
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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.
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