Forex Trading: Selecting the Best Market Movers to Follow

Fundamental analysis is an extremely important practice for online traders, including Forex traders. It allows predicting price movements by studying economic (and other) events that occur outside the market. Prices react to external events, and this also applies to currency pairs. One of the problems faced by those who engage in fundamental analysis is choosing which market movers to follow (a term that indicates events capable of influencing prices). The economic calendar is always full, and analyzing every single event is practically impossible. In fact, there are at least six or seven events on the calmest days, and up to around forty on the busiest days. Here is a guide to choosing market movers, saving energy, and optimizing your fundamental analysis activity.

Identify the Economies Underlying the Pair

This is easy. Obviously, an event is important if it involves at least one of the economies underlying the pair. If a trader invests in the euro-dollar pair, they cannot avoid focusing on events concerning the US economy. Problems, if any, arise when there are more than two underlying economies. This is the case, precisely, with the euro. In theory, the economy underlying the euro is that of the eurozone. However, the eurozone is nothing more than a group of countries, which are very different from each other, sharing the same currency. Is it necessary to consider events concerning the economies of all seventeen countries? Of course not. It is necessary to proceed with a selection, choosing the most important economies. The reference is certainly to the German economy, then to the French and Italian ones.

Identify Economies that have Interdependent Relationships with the Underlying Economies

Not only events involving the underlying economies should be considered, but also those that are interdependent. The issue revolves around a simple principle: the world has been globalized for decades, so what happens in one place certainly has effects on another. Now, this interdependence link is stronger in some cases than in others. It is, for example, if two countries are linked by very close trade relations. One of the many possible references is represented by Australia and China. The Oceanic country, in fact, exports a large part of its raw materials to the Asian giant. It follows that if you intend to invest in pairs containing the Australian dollar, it is good to consider not only the Australian economy and the economy underlying the second currency, but also the Chinese economy. Just to give an example, a GDP figure for China below what was hoped for generates a downward pressure on the Australian dollar. The reason? Simple, if the Chinese economy slows down, imports are reduced and the Australian economy also suffers.

Identify Events that can Directly Influence the Pair

Even considering only the events related to the underlying and interdependent economies, the trader is faced with a large amount of appointments to analyze. It is legitimate, indeed necessary, to proceed with a second selection, which among other things is perhaps the most important. This selection allows identifying the events that directly influence the currencies and focusing attention on them. Typically, there are two events that, more than any other, have this characteristic: interest rate manipulation and the trade balance. When the interest rate rises, in fact, the money supply in circulation decreases and therefore - by the law of supply and demand - the currency appreciates. The effects, obviously, develop over months but investors rush to hedge and inspire an appreciation in a short time. Obviously, if the interest rate falls, exactly the opposite happens. The same goes for the trade balance. If a trade surplus is created, the currency depreciates because, very simply, the money supply increases (the goods are purchased in the currency of the country of origin). If a deficit is created, the money supply decreases and the currency appreciates.

Learn to Read the Economic Calendar

Regardless of everything, and in particular of the measures discussed so far, it is absolutely essential to learn to read the economic calendar. It can be found on specialized websites. Although each site offers its own variant, the basic principles are the same. All the economic calendars found on the web offer information such as: the official name by which the event is indicated, its nationality (e.g. the publication of ECB rates will be marked with the flag of the European Union), the time, the analysts' forecasts, the data of the previous survey and.... The degree of importance. In general, the latter is expressed with a rating ranging from one to three. This is an excellent orientation tool.