How GDP affects prices in the forex
You are missing trading opportunities:
- Free trading apps
- Over 8,000 signals for copying
- Economic news for exploring financial markets
Registration
Log in
You agree to website policy and terms of use
If you do not have an account, please register
In this post I am going to explain what the gross product is and what influence it has in the forex market as regards moving the prices of currencies. Although a lot of traders these days are beginning to look down on the power of fundamental analysis as they doubt what how well the news could affect market prices fluctuation.
To start, the gross domestic product (GDP) should be well recognized as of one the primary macroeconomic indicators used to run an analysis of the state of a country’s economy. The gross domestic product stands for the total value of all goods and services (in monetary terms) which were produced over a particular period of time – this will now show the size of the economy. Most times, the GDP is calculated as a comparison to the past quarter or year. Let us take an example here, if the the year-to-year GDP of country X is up 2%, this basically tells us that the economy of country X has expanded by 2% over the previous yea
Now you will understand that economic data releases are very important for every forex trader, with particular emphasis on the reports of the biggest macroeconomic data like the GDP of the country whose currency you are trading in the forex. Now the GDP will help you assess the overall state of the respective economy and then you transfer this knowledge to calculate how the respective currency would perform in the currency market. Such data are known to cause increased volatility as a lot of speculation is in the market prior to its release. Market players are always looking out for this vital piece of economic data; they would use it to decide on whether to enter a fresh position or even add to an open position, but a bigger number of traders use the GDP in combination with another trend-defining factor or even more.
There is no way we are going to doubt the power of the gross domestic product report and how heavy it is the movement of market prices for currency traders. It serves as an economic signal of how well a productive economy is growing, while giving information on the contraction in one which is not performing to expectations. Owing to this, forex traders will have their eyes on higher rates of growth which is an indicator that interest rates could also increase soon which will soon rise the value of that currency in the forex market.
When a GDP reading of the US for example comes out lower than it was expected, it will basically bring about a sell-off of the USD relative to the likes of GBP, EUR. For example, a worse-than-expected GDP growth in the U.S. would show signs of an economic slowdown and further reduce the U.S. dollar’s attractiveness of the USD even in the forex market.Since such GDP report would cut down on the chances of a rise in U.S. interest rates which would have favored the dollar in the marke
Since currency in the Forex is traded in pairs, traders can then pair a strong economy or currency which has an impressive GDP with a weak economy or currency with a low GDP so as to get powerful trends. So now traders would try to take advantage of the flow from a weak currency to a strong currency due to the fact that it is basically profitable to long the strong and then short the weak.