Six vital numbers for a forex spread better
What should spread betters keep an eye on to spot the next move in their favourite currency? Here are six vital numbers that can all influence an exchange rate.
All eyes are on Japan. The yen has been surging recently, driven in large part by hedge funds rushing to back out of currency trades (see my video tutorial What is a carry trade? for more on this) and other speculators punting at their expense.
But these are hardly normal times for the beleaguered Japanese currency, so few of the normal trading rules apply. But once the extreme situation in Japan has been resolved, what should a trader keep an eye on to spot the next move in their favourite currency, whether that be the US or Australian dollar, sterling or the euro? Here are six vital numbers that can all influence an exchange rate.
The trade balance. If exports exceed imports you generally get a stronger currency (as other countries have to buy your currency to pay for the goods you produce).
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GDP
Wealthy countries usually have healthy currencies.
Consumer and producer prices
As prices rise, so often do interest rates (to ward off inflation), so the currency appreciates too.
Retail sales
A sign of consumer confidence, which in turn can affect a currency as a bellwether for an economy.
Payroll employment
More workers mean more wealth creation and higher GDP.
Housing data
A buoyant housing market encourages people to borrow and spend. That in turn can lift a currency.
Plenty to keep an eye on as a budding forex spread better. And for that reason don't forget to use stop losses so you don't get caught out if you miss crucial economic news breaking.
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Tim graduated with a history degree from Cambridge University in 1989 and, after a year of travelling, joined the financial services firm Ernst and Young in 1990, qualifying as a chartered accountant in 1994.
He then moved into financial markets training, designing and running a variety of courses at graduate level and beyond for a range of organisations including the Securities and Investment Institute and UBS. He joined MoneyWeek in 2007.
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