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Interest Rate:

Interest rates are very important to take into consideration when trading Forex. The interest rate represents the amount of money (in percentages) that a borrower must pay the lender for the use of his money and it differs from country to country. In most countries the change in interest rate is published once per month by the central bank of that country. Changes in interest rates can have a big impact on a currency’s strength and therefore can influence the Forex market.

When interest rates go up, the currency of that country will have a tendency to strengthen. Inversely, when interest rates go down, the currency’s strength will go down with it.

Here is an example which shows how Forex traders can use the changing interest rates to make money:

On November 8^th the European Central Bank published a new interest rate. In the 1 hour graph below we can see the huge change in EUR/USD price which occurred only 2 hours after the interest rate publication. Notice how the price fell down 220 pips in just one interval.

Employment/Unemployment rate:

Employment/Unemployment rate is another factor which can cause great shifts in currency price. The unemployment rate represents the percentage of population which does not work. Higher unemployment rates means a weaker economy as people without jobs have less money to spend, so any change in that direction will weaken the currency of that country. Correspondently, when unemployment rates drop the currency of that country strengthens as it implicates that the economy is growing stronger. Excluding the European Union, each country publishes its unemployment levels on its own. The European Union occasionally publishes information about the unemployment rate in the whole Union but individual countries also publish their own unemployment rates.

Here is an example of how we can use these publications to our advantage:

Below is a graph of the EUR/USD in 1 hour intervals. On December 5^th the US published unemployment rates which had a great effect on the market. In an hour after the release, the price jumped by almost 100 pips (after a quick correction to a drastic drop back to its previous point). Foreseeing these kinds of drastic drops in price is the key to using unemployment rates as a trading tool.

Announcements:

Announcements are similar to interest rates and unemployment rates in that they too are releases made by important bodies of a certain country which are considered an economic event. They differ in that they are not accompanied by statistical data and are harder to predict beforehand. Simply put, announcements are speeches or statements made by people who have an effect on the strength of a currency such as directors of central banks. Like all economic events, these statements can greatly affect the price of a currency pair.

Below is a 30 minute interval graph of the EUR/USD, the most traded currency pair. On May 6^th the president of ECB made a speech which had a huge effect on the market. In two hours the price dropped more than 45 pips. Foreseeing this price change would have been a great opportunity for Forex traders.

All economic events have a great influence on the market and these were only three examples of the many economic events that take place in every country. Keep an eye out for these kinds of events as they provide fantastic short-term opportunities which can yield enormous profits. Pay attention to the economic calendar and make sure you keep up to date on all events.

 Our analysts at FX Market Leaders are always up to date on all current events. They use the economic calendar to combine both a technical analysis of the market and an understanding of current economical events and open live buy/sell signals which take into consideration all the possible factors.