Fundamental Indicator

Monetary Policy – Definition and Types

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Monetary policy is the discipline of economic policy that controls monetary factors to ensure price stability and economic growth.

It brings together all the actions that the monetary authorities (central banks) have to adjust the money market. Through monetary policy, central banks direct the economy to achieve specific macroeconomic objectives. To do this they use a series of factors, such as the money supply or the cost of money (interest rates). Central banks use the amount of money as a variable to regulate the economy.

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Internacional Trade & Trade Balance of USA

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US Trade Balance

General definition and importance

The “International Trade & Trade Balance” is an economic report that measures the difference between imports and exports of goods and services in countries like United States. Imports and exports are important components of accumulated economic activities. Furthermore, representing 14 and 12 percent of the gross domestic product in the United States, respectively. Normally, increases in exports are positive for corporate profits and also good for the stock market. Changes in the trade balance with particular countries may have implications in the monetary policy with respect to those countries for which this report is important for investors who are interested in diversifying their investments globally.

Main Economic Indicators for the Economy of Europe and the Euro (EUR)

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Forex fundamental analysis

Euro fundamental indicators

The fundamental indicators shown below are of high importance for the euro, however, since the EMU (Economic and Monetary Union, the countries within the European Union which share a common market and a single currency, the euro) is composed of 17 countries, it is essential to be aware of major political and economic events of the member countries, such as changes in GDP, unemployment, and inflation. The major economies of the EMU are Germany, France, and Italy, for which, in addition to general economic data from the EMU, economic information from these three countries have the most relevance for the euro.

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What is the FOMC (Federal Open Market Committee)?

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Description of the FOMC

What is the Federal Open Market Committee (FOMC)?

The Federal Open Market Committee (FOMC) is a committee within the Federal Reserve responsible for the most important issues of monetary policy in the United States.

The FOMC is responsible for the country’s open market operations (ie, the buy and sale of US Treasury Securities by the FED). It is the Federal Reserve Committee that makes decisions about the interest rates and monetary resources of the United States. The FOMC establishes monetary policy by specifying the short-term objectives for open market operations of the FED, which is itself the target level for the federal funds rate (Federal Funds Rate is the interbank interest rate, which commercial banks charge each other for loans).

The FOMC also directs the operations carried out by the Federal Reserve System in the foreign exchange market (Forex), although any intervention in the foreign exchange market is coordinated with the US Treasury, which has the responsibility of formulating the policies of the United States with respect to the exchange rate of the US dollar.

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Risks of trading Forex with the news

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In a future article, we will see some techniques to trade the fundamental news in Forex. Before going on, you have to take into account the advantages mentioned in previous lessons about news trading but also the risks and disadvantages that I will expose next and that you will be able to experiment frequently when important market news is published. As with any trading technique, news trading can be profitable but risky, especially for novice traders

Increase of Bid-Ask spread

Some brokers can guarantee the execution of your orders during the publication of important news but not the spread, others can guarantee the spread but not the execution, and others may not guarantee either one thing or another and let the market decide what it can offer you. You will see very often how the spread increases considerably (2, 3, 10, or even more pips) moments before and after the publication of economic news or important economic indicator. If you are going to pursue small profits, 10 or 20 pips, this increase in the spread will also increase the chances of your trades ending up with losses.

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Long-Term Prediction Models of Exchange Rates in the Forex market

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In this article we will examine the different models used in fundamental analysis to predict changes in currency prices which are used by analysts of the most important investment banks. These models may be of interest to all traders who want to increase their knowledge regarding fundamental analysis applied to the Forex market. Currently there are seven main models for forecasting exchange rates:

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US Initial Jobless Claims Indicator

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The Initial Jobless Claims indicator is a report that records how many people have applied for unemployment benefits in the United States, providing information on the state of the labor market of that country. This is a weekly published data, and provides information on how many people applied for unemployment benefits last week. Therefore, this report is also known as weekly jobless claims.

The report of the Initial Jobless Claims is prepared by the Employment and Training Administration of the U.S. Department of Labor, and is published on Thursday of each week at 13:30 GMT, with data from the previous week.

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New Home Sales Indicator

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General Definition

The “New Home Sales” is an economic indicator that measures sales of newly built homes. This is a monthly published data, which always refers to the previous month in which the Department of Commerce’s Census Bureau published the report. This report includes both the quantity and price statistics. It is considered a lagging indicator of market demand and also affect interest rates on mortgages.

It is considered as a sale of a new home any deposit or signing a contract, either in the year in which the house was built or the year after construction.

How affects the control of inflation the Forex market?

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The increase in prices over time, which is inflation, in an economy experiencing growth is inevitable. Furthermore, it is accepted by most economists that a moderate rate of inflation is positive for the economy. In this regard, central banks try to control inflation to be kept within certain limits in order to exploit the positive effects of inflation and reduce the impact of negative effects. In this sense, monetary authorities maintain a constant struggle to control inflation and other monetary forces affecting the economy.

Increases in interest rates

Increasing interest rates is one of the main measures taken by central banks to reduce inflationary pressure when this is high. Moreover, it is easy to apply strategy whose effects are usually seen reflected faster in the economy in comparison with the effects of other methods. By raising interest rates, the central bank raise the benchmark interest rate at which commercial banks will look when granting loans to their clients.

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