How Macroeconomics affects Forex?

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How Macro-Economics Affects Forex?
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How Macro-Economics Affects Forex?
As the prefix macro in the name suggests,
macroeconomics deals with the bigger picture. It
is not only one specific economy that traders
consider, but the implications in the overall
global picture. Forex market is primarily driven
by overarching macroeconomic factors. These
factors influence a trader's decisions and
ultimately determine the value of a currency at
any given point in time.
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1.GDP- Gross Domestic Product

• This is the measurement for goods and services
  that were finished over a period of time.
• GDP is the baseline of a country's economic
  performance and strength. 
• The GDP is broken down into 4 categories
• Business Spending
• Government Spending
• Private Consumption
• Total Net Exports

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2. Inflation
Inflation is also a very important indicator, as
it sends a signal of increasing price levels and
falling purchasing power.  Due to the immense
number of goods and services available in a
country, usually a grouping of these goods and
services are used to measure changes in the
pricing. Increases in pricing indicate an
increase in the inflation rate which in turn can
devalue that country's currency.
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3. Interest Rates
This is always a major focus in the forex market.
Since the central banks mandate monetary policy
and supply, they are the prime focus of investors
and the various market participants. An
increase in interest rates is a good sign for
investors as the currency rate increases due to
the increased interest rate for the currency.
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4. Employment Data
Every country releases employment rates
periodically. A high unemployment rate means the
economy is not growing in line with the
population of if the economy has stagnated. How
it relates to forex market trading A high
unemployment rate could lead to a depreciation in
the currency value and thus decrease the forex
rate of that currency.
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5. Terms of Trades
Terms of Trade can be addressed as the ratio of
Export Prices To Import Prices. If the countrys
terms of trade are large, ie they have more
exports than imports, the currency will always
appreciate and there will be demand for it. How
it relates to forex market trading An investor
may like to invest in a country whose exports are
greater than their imports.
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6. Capital Flow
Currency values can be significantly impacted by
monetary flows that result from certain
interactions between countries. When imports
exceed exports, there is a tendency for the
currency value to decline. Increased
investments in a country can lead to the opposite
result.
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7. Retail Sales
The measurement of sales recorded by retailers
over a period of time is a reflection of either
increased or decreased consumer spending,
depending on whether sales are up or down for the
comparative period a year ago. This indicator
gives market participants an idea as to how
strong or weak the economy is.
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8. Geopolitical Events
The Elections, financial crises, monetary policy
changes, and wars can influence the biggest
changes in the Forex market. These events can
either change and/or lead to reshaping of a
country's economy.
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