What Moves Forex Markets? News, Supply and Demand Explained - YouTube

In this latest video we're going to take a look in a bit more depth about what

actually moves the foreign exchange market. So we're gonna look at what

government announcements and news you need to keep an eye on when trading forex.

Hello, I'm David Jones from capital.com and this is the latest part of

our "How to Trade Forex" course. We're now going to start digging into things in a

bit more detail. Next time around we're gonna start on trading strategies, so

make sure you're subscribed to never miss out on that new content but

first of all, let's just spend a bit of time looking at what major announcements

and what sort of news can really move foreign exchange markets during a

typical trading month. Potentially there are lots of different

announcements that can have an impact on the market but month in and out I think

there are some real key ones to keep an eye on. So without further ado let's get

into that. Let's take a look at what actually moves currency pairs around and

as traders what we need to be watching during the week, the key announcements

that we need to keep an eye on. Let's start off with a high level view of

what to watch when it comes to foreign exchange. First of all government

announcements. So for example monthly unemployment numbers can give us an idea

as to how healthy or not an economy is. These tend to be closely watched. Also

announcements from central bank's whether it's the Bank of England, the US

Federal Reserve, the European Central Bank, the Bank of Japan on interest rates

and how they see the economy. These can also play a major part in short and

medium term volatility for foreign exchange markets. Then of course there's

wider news in recent years. We've had Brexit. We've got concerns about trade

wars between the USA and China for example. So these larger economic

factors will also impact various currency exchange rates. And finally

there's market sentiment. We'll look at a couple of examples when we come to the

end of this. But, I mean, just the overall

momentum in a market, you know, can increase the volatility and have markets

overshooting in both directions. So we'll take a look at that. Let's deal with

government announcements. So these are released on a regular schedule

throughout the month, so every month we have for example, unemployment data

inflation data, this sort of thing. And these are really the two I think to

watch + GDP. So GDP is gross domestic product. Is the economy growing, is the

economy shrinking, is there a risk of recession. So for example if we saw, let's

say, the eurozone, some of the major economies there slip into recession, that

could well influence how the central bank reacts. Which has an impact on the

currency. So all these things are tied in together. But these are some of the main

ones to watch. Then we have central bank announcements, interest rate decisions.

We have been in for many years a low interest rate environment, although rates

have been creeping up over the past year, 18 months or so. Particularly when it

comes to the U.S. But typically there will be one announcement a month from a

country's central bank. So even if they don't change the interest rate, they will

often provide commentary around how they see the economy for their particular

area evolving and these sort of statements again can inject volatility

into the various foreign exchange markets. So even if there's no change

expected, it's still a big announcement to watch. In the U.S. it's the Federal

Reserve, for the eurozone it's the European Central Bank, for the UK it's the

Bank of England and in Japan it's the Bank of Japan. So when this announcement

is due to be made, there's normally an expectation about what's going to happen.

So it tends not to be a surprise, the actual announcement but also they will

offer and give guidance and maybe hints as to how they see rates moving in the

future. So more often than not it's their look

or word that's the important part of the announcement, rather than the decision itself.

Let's move on to wider news. This really can be anything that we

think could potentially affect a country's economy and that will have a

knock-on effect for its currency. If an economy is shrinking, then usually

the currency will be falling as well and vice versa. In times when things are

going well, the performance of the currency is often seen as a vote of

confidence in the economy. So what sort of things do we need to keep an eye on?

Well trade rules for example, that's something that has definitely increased in

importance in recent months. So the threat of.. for example the U.S. imposing

tariffs on China's export to America or the export of European cars to the U.S.

So the trade wars here can really have an impact. Brexit of course has been a

big factor for both the pound and the euro for the past two and a half years

now, so it's the the actions of politicians that can really have an impact on

the currency marke(if they think that's going to affect the country's economy).

Political instability if we saw, you know, a lack of confidence in a current

government in one area of the world. That can cause a loss of confidence in that

country's currency. Something maybe less tangible is market sentiment and I think

maybe the best way of illustrating this is to go through some examples because

trends can take on a whole life of their own. Often if a market starts moving

really strongly in one direction it fuels more people to take positions in

the same direction and so it carries on. On the downside, selling sparks off more

selling. If we see a currency, maybe really starting to crash because that

country's economy is in a mess, then as there's more and more selling it

can fuel more aggressive selling, pushing that currency ever lower. Let's look at a

couple of examples. First of all the UK Brexit decision in 2016. So on the day

of the vote the expectation was that the UK would vote to stay in the European Union.

Pound U.S. dollar (GBPUSD) briefly touched 1.50 on the night of the vote, as the

polls closed. But as the evening went on and into the early hours of the morning. It

suddenly looked as if the UK could actually vote to leave the EU and see

what happened next? So there's the move - you can see a

massive turnaround in sentiment, the pound really collapsed overnight and

there was an element of of panic in the market and that brought out more sellers.

So we saw over the course of little more than 24 hours a 1800 point turnaround in

the fortunes of the pound against the US dollar. So trying to go against that

sentiment.. there was just so much pressure on the back of the vote to

leave that it did really fuel more selling and we saw the market pretty

much collapse over a couple of days. Of course markets can get carried away to

the upside as well. A great example of this is the cryptocurrency bubble in 2017.

Let's take a look. It was probably the late summer of 2017 when things

really started to move. We're looking here at a chart of Bitcoin. It was

trading around about 2,800. Let's just jump forward a month. So a month later

the price had increased from 2,800 to about 4,800. So there was ,this is the

thing, when the frenzy was maybe really starting to take hold

amongst the wider public and more and more people moved in to buying Bitcoin

because they thought the price would just carry on moving higher. Let's jump

forwards again. So by mid November 2017 the price of Bitcoin had touched $10,000

so people who'd bought were sitting on open profits, there was lots of press

saying about how high Bitcoin could go. It was gonna change the world and there

really was a frenzy building. Let's jump forward again. By mid-december the price

almost doubled again, so we almost touched 20,000 by mid-december. And here,

this is really market sentiment running away. And the

buying and pushing the price higher, just fueling more buying and bringing in

more buyers. And this shows you just how important market sentiment is. And to

bring ourselves up to date, I think we all know what happened next.

20,000 or just below 20,000 ended up being the all-time high.

And since then the price has sold off and at the time of recording was

trading just below 4,000. So we've seen market sentiment in both

directions here. The fear of missing out driving the price up and the fear of the

price crashing, just bringing out more sellers. It's an extreme example but it

does show how important sentiment is. And just one more recent example - the Turkish

lira crisis in 2018. So there are real concerns about the Turkish economy and

we saw what was effectively a run on the lira in August 2018. So this is U.S.

dollar Turkish lira (USDTRY). When the market chart is going up, that's U.S. dollar

strength. You can see it came into July trading around about 4.45, so

one US dollar was worth four and a half Turkish liras.

But then fear really gripped this market and we saw sellers of Turkish lira and

of course buyers of U.S. dollar. So the price went from 4.6 to

briefly as high above 7.2 in mid-august. Since then the price has

calmed down but you can see just how sentiment can really grip a market and

how fundamentals and normal news flow can be disregarded, as that sentiment

takes hold.So you can see that potentially there's a whole load of

announcements that can move the currency markets but the big ones month in and

out - interest rates announcements from central banks, the U.S. non-farm payrolls

(that's the U.S. unemployment numbers). It's a major announcement, usually on the

first Friday of the month but sometimes gets pushed back to the second Friday.

And then inflation announcements, because that does have an impact

potentially on what central banks are gonna do when it comes to interest rates.

So it's easy to track all this, as we saw in the economic calendar on our website

and you'll see how the markets reacted. But I'd say those are the ones you need

to be aware of, plus of course the broader backdrop, as we've seen in the

last couple of years. Brexit discussions, Brexit negotiations

and the lack of progress has had a real impact on the likes of the pound and the euro.

Next time around, as I said we're going to start looking at trading

strategies, we're going to start exploring the world of technical

analysis and charting. But we'll start wrapping up this latest lesson. Of course

don't forget we also do analysis on various markets throughout the week.

Whether it's the euro, gold, oil, stock market indices, crypto currencies, that

sort of thing. We do live broadcasts direct from our YouTube channel, just

staying on top of what's happening with markets. To find out more about the

company go to the website capital.com. You can open up a demo account and try

out some of the techniques that I talked about here. And of course when you're

ready to start trading it's easy to fund it and start trading with real money.

And to never miss out on our content just make sure you're subscribed by clicking

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push message every time we upload new content. But for this latest part of our

course on how to trade forex, we'll wrap things up there. So from me David Jones

and capital.com - good luck with your trading!