Do you sometimes peruse the financial news and wonder how to use fresh information to sharpen your forex trading decisions? It’s a common gut feeling that all kinds of traders get when they read about global events that have the potential to shape markets and economic trends. The good news is that there’s plenty of information and raw data out there. The trick for forex enthusiasts is figuring out how to use it to their advantage.
For example, what if you see a headline that announces the Japanese economy is headed for recession? Is there a way to use that sort of info to profit on buying or selling JPY/USD? The short answer is yes, it’s entirely possible. Here’s an overview of what’s happening in the global economy as we head into Q3, and how you might leverage current trends to enliven your forex trading. First, it’s important to understand how to use the right tools to make decisions about the size and timing of your orders.
If you’re like most investors/traders, you have some strict rules in place about risk and reward. This kind of careful analysis is especially common for those involved in foreign exchange markets. One of the most effective ways to stay within your own guidelines is to use a forex calculator for every transaction you’re considering. The beauty of these condensed, easy-to-use programs is that they prompt you to enter the basic data of a trade you’re contemplating.
The calculator will ask you for the pair (USD/JPY, for example), your stops, the amount of the purchase/sale, and a few other parameters. You’ll then see results in terms of upside and downside on the position, based on all the data you entered. If you wish to maintain a 1:3 risk-reward ratio, for instance, you can calibrate the size of your order, the stops, or other information in order to stay at 1:3 or better on a given setup. Calculators take the busy math chores out of decision-making.
The U.S. Dollar (USD)
The purchasing managers index (PMI) is set to come out this week, as are latest reports on inflation stats, orders for durable goods, and jobless numbers. How to trade these vital pieces of data? The PMI measures the strength of the services and manufacturing sectors. A good PMI report could buoy the USD. Other indications that the dollar could rise would be lower than expected inflation, an uptick in durable goods orders, and lower than expected jobless data.
The Japanese Yen (JPY)
The yen has been struggling in 2021, pretty much spiraling straight down since early January against the dollar. For FX enthusiasts who follow JPY/USD, watch the Japanese government’s release of inflation (up is bad, down is good) and PMI numbers (up is good, and down is bad) this week. Currently, the yen is in a full-on bearish trend in comparison to the U.S. dollar.
The Euro (EUR)
Two key bits of intelligence will enlighten FX traders this week from the European market. Those are PMI reports and a set of economic confidence indicators. Positive news from both could help propel the EUR upward. Lately, the currency has not been doing so well, most recently losing nearly 2.5 percent against the USD, as the EUR/USD pair hit the $1.18 point to end a four-week period of worsening values.
The Australian Dollar (AUD)
Against the U.S. dollar, the Australian currency has been having a good year but a very bad month. This coming week there is very little economic news coming out with the exception of retail sales data. Because there’s a one-month lag of this key statistic, it will be carrying a lot of impact as the star of the financial show. If May’s numbers are better than expected, watch for the AUD/USD to rise above the key $0.75 level.
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The British Pound (GBP)
The pound has rallied against the U.S. dollar for nearly 12 straight months until hitting a dip recently. This week will see some important data coming out of the UK government, including CBI numbers (the nation’s industrial activity index), as well as a much-awaited report from the Bank of England about whether the economy will be fully reopening. If the CBI looks good and the BoE report even hints at a positive decision about reopening the nation’s economy post-COVID restrictions, get ready for a GBP/USE rise, possibly above the $1.39 mark, which is where it stood almost exactly one month ago. A complete economic reopening could have a significantly positive impact on this currency pair.