Factors That Affect the Forex Markets in the Short Term

Fundamental traders depend on fundamental analysis in trading forex. Technical traders depend on technical analysis in trading forex. But the importance of economic data cannot be underestimated in shaping trading strategies.

Over 90 percent of currency transactions are done against USD. USD is either the base currency or the counter currency in most of the currency trades.

For success in forex trading, choice of the right currency pair to trade is very important. US Dollar is the most important currency and most probably you will be also trading US Dollar as a forex trader most of the time. You should know that the release of certain economic data has significant and lasting impact on US Dollar.

With experience, you will understand that currency markets reaction to the release of different economic data with time also changes. A few years back, US GDP figures used to be important for USD but they dont have much impact now.

EURUSD is the most liquid pair in currency markets. The release of Nonfarm Payrolls (NFP) data on the first Friday of every month makes this pair and other pairs involving USD highly volatile.

Similarly, a few years back the release of US housing sales number every month was not important for the currency markets. But it has become very significant for USD in the recent years. Currency markets used to give more importance to US Trade Balance in the past but they dont react to these figures much now.

Range traders like to trade when the currency pair they are trading tends to range. If you are a range trader who wants to scalp for a few pips every time you trade, you should avoid the day NFP data is released for trading. This is a highly volatile day for the markets.

However, if you are a breakout trader, the knowledge of which economic data is expected to be released can help you in determining the size and confidence of the trade.

In brief, knowledge that certain economic indicators make the forex markets move most is important for you as a trader. It is also important for you to know that particular economic data, the market considers most important at any point in time.

Knowledge of which economic data causes knee jerk reaction in the currency markets and which economic data usually has lasting reaction in the currency markets is also important for your trading success.

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