Beside regularly schedule release of economy & job data, the following fundamental informations are vital in currency trading:
(1.0) Dow & S&P 500 . It indicates investors' willingness to take risk (risk appetite), or investors' refusal to take risk (risk aversion).
The index will go up, when investors are willing to take more risk, and we'll see the spike in currencies like Euro (eur/usd), Gbp (gbp/usd), Aud (aud/usd), Nzd (nzd/usd). At the same time, the safe haven currencies like usd & chf will decline, and we'll see usd/jpy & chf pairs are declining.
In contrast, when investors refuse to take risk, the index goes down, the higher interest currencies will decline, and the safe haven currencies will appreciate.
It's very useful to identify the TREND and support & resistance levels of S&P 500, so that we can enter and exit the market at the right time & right price. The index also tells us whether the current trend of the above mentioned pairs will continue or about to reverse.
(2.0) GOLD price. Five currencies like AUD, CHF, CAD, NZD, USD, are very much influenced by the movement of gold price. Aud/usd, Nzd/usd, Usd/cad, Usd/chf, Gbp/chf will react, when gold price appreciate or depreciate.
AUD is the world's 3rd largest gold producer is strongly correlated to gold price. NZD has nothing to do with gold, but it economy is closely linked to AUD, therefore it will react the same way as aud. CAD is the 5th largest world's gold producer is strongly correlated to gold price.
CHF is not a gold producer, but it keeps 25% gold reserve to back up every note issued, therefore, chf is strongly correlated to gold price. No wonder it's the safest currency around.
US is the world's 2nd largest gold producer behind South Africa, but it negatively correlated to gold price. When gold price appreciates, usd will depreciate, and gold is called " anti-dollar", because it's an alternative to usd. Investors buy gold for 2 reasons: (1) to seek shelter during mkt uncertainties (2) to hedge against inflation. Gold price is determined by supply & demand, and does not affected by stocks or bonds mkt.
(3.0) USD index. It measures usd against six currencies according to percentage weight: Eur (58.6%), Jpy (12.6%), Gbp (11.9%), Cad (9.1%), Sek (Swedish krona 4.2%), Chf (3.6%). A decline in usd index will spike in EURO because it's the heaviest weighted currency being measured against.
(3.0) USD index. It measures usd against six currencies according to percentage weight: Eur (58.6%), Jpy (12.6%), Gbp (11.9%), Cad (9.1%), Sek (Swedish krona 4.2%), Chf (3.6%). A decline in usd index will spike in EURO because it's the heaviest weighted currency being measured against.
(4.0) US 10-yr Treasury Bond. It shows the real value of USD, and a steady increase in yield, followed by a decline in gold price, may indicate a significant rally of USD. If stock mkt goes bad, investors always seek shelter in US-10 yr bond, and you will see it's yield declining due to high demand. It may serve as an alert signal of incoming mkt uncertainties & risk aversion, followed by declining in euro, aud, nzd, and rising in yen, usd, chf. An increase in demand of US 10-yr treasury bond (during mkt uncertainties) will cause it yield to decline, and a decrease in demand of this bond (during stable mkt) will cause it yield to rise. The movement of yield will serve as an indicator of when to enter safe haven currencies vs high interest currencies
(5.0) OIL PRICE. It has weak correlation with oil producers GBP & CAD, but has major
impact on energy-sensitive US economy & USD, since it is world largest oil importer. High oil price adds up to cost of production, thus increases products' prices, thus increases inflation, thus increases interest rate. It has major impact on world economy. Strenthening USD will lower oil price because oil is priced in USD.
A decline in oil price could signal a weaker demand in manufacturing products or services, decline in export, slow down in economic growth, an early sign of recession. A rise in oil price may signal a better prospect of world economy or a workable solution to previous economic problems, and an optimistic of future outlook.
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impact on energy-sensitive US economy & USD, since it is world largest oil importer. High oil price adds up to cost of production, thus increases products' prices, thus increases inflation, thus increases interest rate. It has major impact on world economy. Strenthening USD will lower oil price because oil is priced in USD.
A decline in oil price could signal a weaker demand in manufacturing products or services, decline in export, slow down in economic growth, an early sign of recession. A rise in oil price may signal a better prospect of world economy or a workable solution to previous economic problems, and an optimistic of future outlook.
copy right @moorearshad
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