More Factors That Affect Market Sentiment
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Learn forex scalping.Besides the interest rates, economic growth of countries can also have a big impact on the overall currency market sentiment. United States is the largest economy in the world. US economy is the key factor in determining the global currency market sentiment especially for the major currency pairs like EUR/USD, GBP/USD, CHF/USD and JPY/USD.You can trade forex news.
Discover a revolutionary new forex robot. A strong economic expansion coupled with a healthy labor market tends to boost consumer spending in the country. This helps in selling the stuff produced by the local companies and businesses.
A country with a strong economy is in a better position to attract foreign investors. Investments pouring into the country increase the demand for that currency. This increased demand causes that currency to strengthen against other currencies.
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Some of the most important indicators of a country economic growth are: 1) Gross Domestic Product, 2) The unemployment rate and 3) The trade balance. Let’s discuss these three economic indicators.
GDP: GDP measures the total good and services that are produced in a particular country in a one year. Actually we will be usually talking about the GDP growth rate whether the economy is expanding or contracting. A healthy GDP growth rate figure usually adds a bullish sentiment to the currency of that country especially if it exceeds the market expectations. Always remember the markets react violently to surprises.
Unemployment Rate: A low unemployment rate is considered to be a positive for the country’s economy and its currency. A low unemployment rate means almost all the consumers have jobs and they are willing to spend more. The more the consumer spends, the more the companies and businesses in the country sell. This generates more output and further expands the economy. The unemployment rate data reports the state of the labor market in the country. The opposite is true for a high unemployment rate. High unemployment means the economy is in recession and many people are without jobs just like the present. Under such conditions, consumer spending decreases. Companies and businesses start laying off more workers and in extreme case go bankrupt when they can’t sell their stuff in the markets.
Trade Balance: This is another widely watched economic indicator in fundamental analysis. If a country exports more than it imports, the trade balance is in surplus. If the imports are more than the exports, the country will end up with a trade deficit. Trade deficits are not good and must be balanced by the capital account surplus otherwise a balance of payment problem will ensue.
Suppose US import more from Europe. US Dollar will have to be sold in order to buy Euros to pay for those imports. This selling pressure on US Dollar will result in the depreciation of the US Dollar relative to the Euro and other currencies. The opposite is true in case of a trade surplus. US Dollar will strengthen and appreciate relative to Euro if US exports more to Europe as compared to its imports.
Geopolitical risk is also very important and can cause the currency of a country to move up or down relative to other currencies. Geopolitical risk refers to the risk of a country’s foreign or domestic policy affecting domestic social and political stability in another country or the region.
More Factors That Affect Market Sentiment
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February 8th, 2012 at 10:23 am
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