Forex Course

189. Summary – Trading The News

What did we learn till now? 

Sometimes in the forex market, the movement of prices seems random. In the previous series of courses, we have shown that most of the randomness you observe can be explained. By now, you should be capable of identifying the various news releases published daily. You should also be able to determine which currency pairs the news release is likely to impact.

In this final course, we’ll recap all that we have learned so far.

When it comes to news trading, a forex trader can either have a directional bias to trading or have a non-directional bias. For directionally biased traders, they have to:

  • Familiarise themselves with the economic calendar to know when economic indicators are scheduled for release
  • Understand the impact that each indicator might have and which currency pairs are best to trade
  • Understand that the analysts’ consensus or expectations are what determines if the news release is negative, positive, or in-line
  • Know which news releases to avoid trading

On the other hand, forex traders who have a non-directional bias do not necessarily need to familiarise themselves with these conditions. Such traders only need to know two things.

  • The scheduled release of economic indicators, speeches by influential people, and significant geopolitical events
  • Whether the upcoming event is of a high or low impact

Traders with a non-directional bias only concern themselves with the magnitude of the price movement after an event – not the direction. That is why they adopt the straddle strategy.

The straddle strategy uses forex stop orders, which triggers long or short positions if the market significantly moves in either direction. The buy stop order will trigger a long trade if the news release results in a bullish market. With the sell stop order, s short sell will be executed if the news release results in a bear market.

Remember to be careful when trading the news. Always keep an eye on the prevailing macroeconomic trends and geopolitical events. The overall market sentiment can sometimes amplify or dampen the impact of a news release.

If, for example, moments before the release of UK manufacturing data, the market receives news that the ongoing Brexit negotiations have hit a snag. If the manufacturing data is positive, its impact on the market will be dampened; if the release is negative, its impact will be magnified. All the best.

Forex Course

187. Learning To Trade the News With Directional Bias


In this course, we will further explain, with an example, how you can trade a news release with a directional bias. In the US, the labor market report is one of the most anticipated new releases in a month. The report has a significant impact on any pair with USD. Note that every trader has their approach to trading the news with a directional bias. Here’s our approach.

If you are a forex trader with a directional bias, you need to have in-depth knowledge of the news release you are trading. What do we mean by in-depth knowledge? Firstly, you have to know what that particular news release tells about the economy. For example, the US labor market report has the unemployment rate and nonfarm payroll data.

When both these indicators beat the analysts’ expectations, we can expect that the USD will become stronger than other currencies. The US labor market report is a leading indicator of consumer demand, contributing up to 70% of the GDP. Furthermore, in the current coronavirus pandemic, the labor market report is used to show the rate of economic recovery.

You’d also expect the USD to weaken relative to currencies it is paired with if the news of the labor market report doesn’t meet analysts’ expectations. In this case, it means that unemployment increased, and the economy didn’t add as many jobs as expected.

To make a proper directional bias trade, you need to understand how the labor market report impacts the forex price charts. You have to look into past releases and establish how much the market moved; this will help you get the average pip movement. You also need to be aware of the prevailing macroeconomic conditions and the recent unemployment rate trend.

What to do before the news release?

Go back a few hours on your chart and establish the intraday support and resistance levels. You will use these levels as your ‘take profit,’ and ‘stop-loss’ levels after the news is released.

Let’s check out the news release of the US unemployment rate on October 2, 2020, at 8.30 AM EST.

EUR/USD: Before US Unemployment Rate Release on October 2, 2020, 
just before 8.00 AM EST

Since the unemployment rate was lower than the previous release and also beat analysts’ expectations, our directional bias is to be bearish on the EUR/USD pair. In this case, we will use our previously established Support Level as the ‘take profit.’

EUR/USD: After US Unemployment Rate Release on October 2, 2020, 8.00 AM EST

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Forex Course

185. Knowing Which News Release To Trade Is Crucial!


Before you develop your trading strategy around the news releases, you first need to decide which news you will use for trading. As we mentioned in our previous course, different economic releases have a varying impact on the forex market. Since the aim of any trade is to gain as many pips as possible, it is only natural that you trade news releases that create high impact – those which can significantly move the forex market in the short-term; or even the longer-term.

The primary way to identify high-impact news releases is by establishing which economic indicator gives a relevant, most current, and comprehensive overview of the economy. The high-impact news releases usually cover these aspects;

Central banks’ monetary policies: These policies can impact future economic growth – both in the short and long term.

Labour market reports: Such reports tend to be of the changes in the previous month. They are a leading indicator of changes in household demand, which is a major contributor to economic growth.

Manufacturing and industrial activities: These sectors are usually among the largest employers in the labor market. Monitoring their growth can be a leading indicator of GDP growth and changes in the unemployment levels.

The services industry: This industry is the first to be impacted by changes in consumer demand.

You don’t have to stress about determining which specific economic indicators are high-impact. The economic calendars take care of this for you. Furthermore, there are several economic calendars out there, so you can compare multiple calendars and check put the consensus about the impact magnitude of the various news releases.

Note that these calendars have a legend to indicate the magnitude of the news release. They show whether the news will have high, medium, or low volatility.

Here’s our recommended list of high-impact economic indicators.

  • GDP releases
  • Inflation indicators like CPI, PPI, and PCE
  • Interest rate decision
  • Unemployment rate and wages data
  • Industrial production, factory orders, or manufacturing production
  • Retail sales
  • Surveys on the manufacturing sector and services industry
  • Sentiment surveys on consumers and businesses

It is important to note that geopolitical developments can be happenstance. These events could include upcoming elections in major economies, natural disasters like tsunamis, pandemics, and geopolitical conflicts. When these events happen, the impact of the release of the economic indicators may change.

For example, towards the end of Q2 in 2020, the impact of these economic indicators was heightened. The reason is that they signaled the rate of economic recoveries after the coronavirus-induced recessions. Furthermore, they showed whether or not the expansionary policies adopted impacted the economy as expected.

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Forex Fundamental Analysis

Everything About Deposit Interest Rate as a Macro Economic Indicator


Deposit Interest Rates play a crucial role in controlling the flow of money within the economy and the international market. The interest rate differentials have always directed the flow of speculative money in and out of countries, thereby affecting the currency exchange rates. Hence, it is crucial to understand Deposit rates as an economic factor in the FOREX industry.

What is Deposit Interest Rate?

Deposit Interest Rate: It is the money financial institutions pay the depositing party. The deposit account holders put some money in the bank for which the bank pays out interest. Deposit accounts can be a savings account, Certificates of Deposit (CD), and self-directed deposit retirement accounts.

Banks give loans to its customers at a higher rate than the interest they pay out on their deposit accounts. It is this spread between the lending rate and deposit rate that banks make their profit and is called Net Interest Margin.

How can the Deposit Interest Rate numbers be used for analysis?

Potentially, banks are free to set their deposit rates at whatever rate they desire, but they have to keep competition and business into account. Deposits provide financial institutions with the necessary liquidity to maintain business and give out more loans. Banks need to give out loans to make a profit, but also needs to have depositors to provide the required liquidity. Within the country, when the deposit interest rates are low, people would be more interested in investing their money in stocks or other money markets where there is a possibility of a higher return on their capital.

Conversely, banks may increase their deposit rates to attract investors to deposit their capital providing banks with the necessary liquidity to fund their loans. Investors see bank deposits as a safe bet against the risky stock or money markets where they are subjected to a potential loss. Customers are also encouraged to save more and spend less when they get a higher return on their deposits. In the international markets, investors check and compare the lending and deposit rates of major banks in different countries. When the deposit rate of a bank in one country is higher than the lending rate of a bank in another country, there is a chance of making money.

Investors, traders, or some institutions may borrow money from a low-interest rate country and deposit in another country where the rates are high. This difference in the lending and deposit rates amongst banks of different countries is called Interest Rate Differential or ‘Carry.’ For example, let us assume when the deposit rate in Australia is 5%, and the lending rate in the United States is 3.5%. The difference of 1.5% return will move the speculative or “hot” money out of the United States and into Australia. When the Australian Dollars start to flow into the country, the global FOREX market is deprived of the AUD currency, and, hence, it is appreciated.

The below plot also shows the historical difference between the interest rates differential (AUS IR – USA IR) and the AUD USD exchange rate. As we can see, whenever the difference between the interest rates rises in favour of AUD, the exchange rate tends to follow. There is a good correlation between both in the long run. Whenever the direction changes in favour of the United States, so does the exchange rate.

Hence, the “carry” essentially directs the flow of “hot” money in and out of countries whenever there is an increase in interest rates differentials. The larger the difference and consistent the direction of the differential in the plot (positive or negative) more will be the inflow of money in that direction.

When the differential is near or close to zero, then the speculative money may be forced into other options to generate revenue. The interest rate differential may be prominent when paired against small and developing countries to that of developed countries in general. As most of the developed economies are struggling to maintain their growth and have been forced to keep interest rates low, it indeed is a little tricky to find currency pairs to generate a significant carry.

Impact on Currency

Deposit rates have a definite impact on the currency markets. It is one half of the money flow equation. When the lending rates and deposit rates are checked and compared, money flow starts in favour of the higher deposit rate country that appreciates the currency value and vice-versa.

Therefore, deposit rates alone do not determine currency value fluctuations. But in general, it is safe to say that higher deposit rates tend to appreciate currency’s value as the market is deprived of that currency. Conversely, low-interest rates on deposits discourage saving and thereby go into spending, which contributes to inflation and currency depreciation.

Economic Reports

The deposit interest rates of local banks can be found on the respective banks from which we would want to borrow money. But in general, the deposit rates and lending rates due to market forces are subject to be close to the country’s Central Bank’s target rate.

For the United States, it is the Fed Funds target rate, and the actual rate is called the effective Fed Funds rate. The Federal Reserve publishes Monday to Friday the daily Interest Rates in its H.15 report at 4:15 PM on its official website. Weekly, Monthly, Semi-annual and Annual rates of the same are also available.

Sources of Deposit Interest Rate

The United States Fed Rates are available here. The monthly effective Fed Funds rates are available in a more consolidated and illustrative way for our analysis in the St. Louis FRED website. Consolidated Deposit Interest Rates of different countries are available here.

How Deposit Interest Rate Affects Price Charts

For forex traders, monitoring other economic indicators is usually meant to help them predict what interest rates are going to be in the future. However, since the deposit interest rates largely depend on the federal funds rate, they rarely have any significant impact on the forex markets by itself. It is worth noting that the US FOMC only meets eight times in a year to determine the federal funds’ target rate. This explains the lack of impact by the deposit interest rate.

In the US, the Fed Funds target rate, on which deposit interest rates are based on, are published every weekday at 4.15 PM ET. Below is a screengrab of the Fed Funds target rate from August 11 to August 17, 2020.

As can be seen, the rate has remained the same at 0.1%. The screenshot below is from Forex Factory, showing that the latest FOMC decision recommended that the Fed Funds target rate remains between 0% and 0.25%.

Now that we’ve established the impact that the deposit interest rate has on the economy and the currency valuation let’s see how it impacts the price action of some select currency pairs.

EUR/USD: Before Effective Fed Funds Rate Release August 17, 
2020, Just Before 4.15 PM ET

The 15-minute EUR/USD chart above shows that the market between 10.15 AM and 4 PM ET on August 17, 2020, had no specific trend. The market has adopted an almost neutral stance with the candles forming just around the flattening 20-period Moving Average.

EUR/USD: After Effective Fed Funds Rate Release August 17, 
2020, 4.15 PM ET

As can be seen on the chart above, immediately after the daily update on the Effective Fed Funds rate, there is a slightly bullish 5-minute candle forms. The news, however, is not significant enough to the market to cause any spikes or change the prevailing market trend. As can be seen, the pair continued with its neutral trend and a flattening 20-period Moving Average.

Let’s see how this new release has impacted some of the other major Forex currency pairs.

GBP/USD: Before Effective Fed Funds Rate Release August 17,
2020, Just Before 4.15 PM ET

The neutral trend observed with the EUR/USD pair before the daily release of the Effective Fed Funds Rate can be seen on the GBP/USD chart above. The candles formed just around the flattening 20-period Moving Average.

GBP/USD: After Effective Fed Funds Rate Release August 17, 
2020, 4.15 PM ET

After the news release, a 15-minute bullish candle forms. However, the same neutral trends persist with the pair indicating that the news was not significant enough to move the markets and cause a change in the trend.

AUD/USD: Before Effective Fed Funds Rate Release August 17, 
2020, Just Before 4.15 PM ET

AUD/USD: After Effective Fed Funds Rate Release August 17,
2020, 4.15 PM ET

Unlike with the EUR/USD and the GBP/USD pairs, the AUD/USD pair had a clear uptrend before the daily release of the Effective Fed Funds Rate. This uptrend was not a steady one since the candles formed just above an almost flattening 20-period Moving Average. After the news release, a bullish 15-minute candle is formed. The news was, however, not significant enough to alter the prevailing market trend.

While the deposit interest rate is vital in determining the flow of money in an economy, it plays an almost insignificant role in moving the forex markets. Cheers.

Forex Fundamental Analysis

Impact of ‘Bankruptcies’ News Release On The Forex Assets


A bankruptcy on paper and in reality differ in several meaningful ways. The short and long-term implications both have to be fully taken into the picture before forming an opinion or drawing any inference from the Bankruptcy statistics. Contrary to popular belief, it is not as bad as it sounds and is more frequent for businesses to file for bankruptcy as a means to reset their business to become profitable. Correctly understanding bankruptcy, its implications, and its statistics can help us make better trade decisions in the long run.

What is Bankruptcy?

Bankruptcy is the legal state of an individual or a company that has become insolvent. When an individual or a company is unable to repay its debt, it can file a petition for bankruptcy in the federal court. When individuals lose their income source or when a business takes on continued periods of losses are likely to file bankruptcy.

The bankruptcy process starts when a petition is filed by the debtor or the creditor, although it is more common for the debtors to file for bankruptcy. Successful processing of a bankruptcy petition can benefit the debtor to be discharged of their debts, thus giving them the freedom from the overburdening debts and restart.

When a bankruptcy petition is processed, the assets of the debtor are evaluated, and an appropriate portion may be allotted to repay the creditors. Whether all of the assets are sold off to repay debt or not depends on the types of bankruptcies filed. Many a time, creditors may need to reorganize the debt to allow the debtor to pay off the debt in smaller installments over three to five years.

How can the Bankruptcies numbers be used for analysis?

On paper, all this may seem favorable to the debtor offering immediate relief from the overwhelming debts.  The debtor may not be required to pay at all if the debtor does not have assets or income or at least greatly waive off their debt installments. Successful proceeding of a bankruptcy petition can partially or entirely waive off debts for a chance to save your home or business from going-under.

Such an exemption comes at a cost, though. As mentioned, on paper, it seems like a favorable option for the debtor in a tight spot, but in the long-run, it has far-reaching implications. If a debtor is filing bankruptcy, chances are, their credit score has already gone wrong due to failed payment dues in past months. When the bankruptcy is filed, it will stay on the record of that individual or company for ten years. In this process, the credit rating goes low, and a remark of bankruptcy on record prevents you from being eligible for future credits, loans, mortgages, or even credit cards.

When lending sources are all cut off, then it is challenging for both individuals and businesses to become profitable. Some may even end up borrowing from sources where interest rates are much higher than the standard rates, ending up in deeper trouble than before.

Filing bankruptcy is more frequent for businesses to reorganize their remaining assets and come up with a new strategy to be profitable. All the bankruptcy cases are handled in the federal courts by a bankruptcy judge. They are classified as per the bankruptcy code that details different chapters for different types of bankruptcy case scenarios.

From a macroeconomic perspective, bankruptcy filing gives both the debtors and creditors a fresh start by allowing debtors to be eligible for credit and creditors to recover some portion of the credit. Having such a system that can accommodate failures of individuals and companies is a sign of a fair and inclusive economy that embraces and tolerates both ups and downs of individuals and businesses.

From a purely business and growth perspective, increasing bankruptcy cases is just plain bad for the economy as it indicates businesses are shutting down, and people are losing jobs. Both of those scenarios do no good for the economic growth and contribute negatively to both growth and consumer & business sentiment within the nation. Filing of bankruptcy thrashes the equity market performance of corporations as investors lose confidence in the business.

Recessions, war-times, or times like global pandemic observe an increasing number of bankruptcy cases indicating that the economy is not faring well. Hence, from an economic standpoint, the “fewer the better” would be the goal for a prosperous economy.

Impact on Currency

Filing Bankruptcy is often the last resort for the debtor when all other options are closed. Hence, the bankruptcy statistics are backward-looking or a lagging indicator confirming an ongoing past trend which could have been deduced from the past poor performance. Bankruptcy statistics would then be useful for economic analysts for analysis but does not serve as a useful indicator either for the equity or the currency markets. Hence, bankruptcy figures could be overlooked for other leading macroeconomic indicators for the currency markets.

Economic Reports

The United States Courts provide historical data of the quarterly reports of bankruptcy filings in the country on its official website. The Organization for Economic Co-operation and Development (OECD) also maintains bankruptcy statistics for reporting members. Moody’s analytics also provide personal and corporate bankruptcy filings on their official website.

Sources of Bankruptcy Statistics

The US Courts maintain bankruptcy filings records on its website.

The OECD Bankruptcy statistics are also helpful for quick reference of the OECD member countries.

Global Bankruptcy statistics are available on Trading Economics.

Moody’s analytics also report personal bankruptcies.

How Bankruptcies’Data Release Affects The Price Charts

Estimating the exact impact of bankruptcies on an economy is hard to quantify. Since the bankruptcies data is released quarterly, its impact on the forex market tends to be negligible because the data is backward-looking. The most recent data was released on June 30, 2020, at 8.00 AM ET and can be accessed from the United States Courts website here. The historical bankruptcies’ data in the US can be accessed at the Trading Economics website.

The screengrab below is from the quarterly bankruptcies’ data from Trading Economics.

As can be seen, the total number of bankruptcies in the United States decreased to 22,482 companies in the second quarter of 2020 from 23,114 companies in the first quarter of 2020.

Now, let’s see how this release made an impact on the Forex price charts.

EUR/USD: Before the Quarterly Bankruptcies Data Release on August 2020, 
Just Before 8.00 AM ET

As can be seen in the above 15-minute EUR/USD chart, the pair was trading on a weak downtrend. This trend can be affirmed since the 20- period Moving Average is decreasing in the steepness of its decline with candles forming closer to it.

EUR/USD: After the Quarterly Bankruptcies Data Release on August 2020, 8.00 AM ET

After the release of the bankruptcies data, the pair formed a 15-minute “hammer” candle. This pattern indicates that the USD became weaker against the EUR. This trend is contrary to the expectations since the number of bankruptcies had declined from the previous quarter. The pair adopted a bullish stance with the candles crossing above a now rising 20-period Moving Average.

Now let’s see how this news release impacted other major currency pairs.

GBP/USD: Before the Quarterly Bankruptcies Data Release on August 2020, 
Just Before 8.00 AM ET

The GBP/USD pair showed a similar weakening downtrend trend as observed with the EUR/USD pair before the release of the bankruptcies data. The 15-minute candles can be seen, forming closer to the 20- period Moving Average, whose downward steepness is decreasing.

GBP/USD: After the Quarterly Bankruptcies Data Release on August 2020, 8.00 AM ET

After the news release, the pair formed a 15-minute bearish “Doji star” candle. Similar to the EUR/USD pair, GBP/USD  adopted a bullish stance with the candles crossing above a now rising 20-period Moving Average.

AUD/USD: Before the Quarterly Bankruptcies Data Release on August 2020, 
Just Before 8.00 AM ET

AUD/USD: After the Quarterly Bankruptcies Data Release on August 2020, 8.00 AM ET

Unlike the downtrends observed with the EUR/USD and the GBP/USD pairs, the AUD/USD traded within a subdued neutral trend before the bankruptcies data release. The 15-minute candles were forming around an already flattened 20-period MA. After the data release, the pair formed a 15-minute bullish “Doji star” candle. It later traded in the same bullish pattern as observed in the other pairs.

Bottom Line

In the current age of the coronavirus pandemic, data on bankruptcies provide a vital indicator of the economic conditions. However, in the forex market, these data do not carry much significance, as shown by the above analyses.

Forex Fundamental Analysis

Does The ‘Import Prices’ News Announcements Impact The Forex Price Charts?


Import and exports make up a country’s trade balance that primarily drives currency value and economic growth. The two-way feedback between imports and exchange rates is critical to understand and how the trade balance affects currency value. Understanding changes in import prices can help us deepen our understanding of macroeconomic fundamentals of every country.

What is Import Prices?

Import prices are the cost at which foreign goods are purchased in the international market. Import prices are measured through import price indexes. Import price indexes measure the change in prices paid for goods imported to the domestic country. The import price index figures for a reference period relate to the prices of goods that have come into the country during the period.

Import prices are essential to a country’s trade balance. A country’s trade balance is the difference between its total exports and imports and is an economy’s major composition.

How can the Import Prices numbers be used for analysis?

The international market always tends to stay in an equilibrium of currencies. When a country’s currency is flooded into the forex market, its relative value falls against other currencies. On the contrary, when a particular currency leaves the international market and goes into the country, the deficit increases its value against other currencies. Hence, excess reduces value, and scarcity increases value.

In this sense, when a country imports goods and services, it does so by paying out or sending out its domestic currency into the international market. When a country exports a good or service, it sends out the product in return for dollars coming into the country. Hence, overall the total worth of exports and imports should be balanced to maintain the currency’s current value.

When a country imports more than it exports, it faces a trade deficit, and as a result, its currency value falls relative to other currencies. When imports exceed exports, it means the country is a net consumer of goods and services in the global economy. It is negatively contributing to global economic growth. When a country exports more than it imports, it faces a trade surplus, and as a result, its currency rises relative to others. When a country is a net exporter or provider, it is contributing positively to global economic growth.

In general, countries prefer to maintain a trade surplus, but may intentionally maintain a trade deficit by importing, to increase their exports and overall economic growth in the future. Countries in today’s modern world have increasingly become dependent on international trade for both imports and exports.

Countries that do not have a competitive edge in specific sectors prefer to import goods and services from other corners of the world where they may be more efficiently produced and are cheaper. Businesses rely on importing raw materials or intermediate goods for producing finished goods and services, or even consumption.

A strong currency will favor imports as more goods can be procured for a unit of currency. Prolonged deficits (imports exceeding exports) devaluate the currency, which is not suitable for the economy. Hence, countries’ central authorities closely monitor the import and export price changes to draw out policies or reforms if needed to ensure a trade balance. In a crude sense, a country’s exports are its income, and imports are its expense. Increasing imports and declining exports ultimately drive a country into a debt trap.

Import prices are useful for negotiating future trade contracts, tracing global price trends for certain goods and services, predicting future prices, and domestic inflation. It is also used to deflate trade statistics published by the government. Import price also helps the central authorities to decide which and how much of a fiscal or monetary lever is to be used to manage exchange rates.

Import prices are especially valued in the bond markets because of its direct impact. As importing prices become too high, it deteriorates the importing company’s profit margin, ultimately decreasing corresponding bond prices. Hence, bond prices decrease when import prices substantially increase. On the other hand, when import prices decrease, the profit margin for companies increases, and correspondingly the bond prices also rise, seeing the increased margin.

Impact on Currency

The currency markets are always focused on macroeconomic indicators and do not focus on indicators that focus on specific parts of the economy. However, import prices affect trade balance, bond markets, and even stock markets. The overall net import and export figures and trade balance reports constitute more precedence than the individual import prices report for the currency markets. Hence, it is a low-impact indicator in the currency markets and can be overlooked for other macroeconomic indicators.

On an absolute basis, significant increases in import prices for prolonged periods, deteriorate currency, and economic growth. In practice, multiple forces act for and against such figures, and import prices alone are insufficient to determine currency’s future direction.

Economic Reports

In the United States, the Bureau of Labor Statistics publishes monthly import prices as part of its “Import/Export Indexes (MXP).” It is released every month around the second week for the previous month on its official website.

Sources of Import Prices

The Bureau of Labor Statistics Import/Export Indexes (MXP) is primarily used. It is also categorized into subtables by End-Use, NAICS (North American Industry Classification System), Harmonized System, and Origin. Consolidated Import prices for most countries is available on Trading Economics. The World Bank also maintains international trade data in terms of import value and export value indexes.

Import Prices – Effect on Price Charts

Import Prices is an important element in understanding the trade balance of an economy. However, it alone cannot affect the economic condition of a nation. It is combined with the Export Prices, and the difference between the two is what makes it vital.

Coming to the currency market, the Import Prices report mildly affects the volatility of a currency. If immediate volatility on the time of release is not observed, it could be reflected in the short term.

Import Prices Report

The below report represents the Import Prices of the US for the month of June. According to the data released on July 15, the Import Prices increased by 1.4% month-on-month, after a decline of 0.8% the previous month. Also, it beat the forecasted value of positive 1.0%.

Historical Impact Prices Report

Impact Level

The US Import Prices released by the US Department of Labor has a moderate impact on the currency market (USD).

USDJPY – Before the Announcement

Below is the price chart of USDJPY on the 15mins time frame. Before the report was released, the market was in a strong downtrend representing USD weakness.

USDJPY – Before the Announcement

When the news was released during the open if the New York session, the trading volume considerably increased, and the price continued to move south. However, later in the session, the prices reversed in favor of USD. This indicates that the market did have an impact on the report.

USDCHF – Before the Announcement

Before the news announcement, the volatility of the market was feeble. The price which was inclined down initially, but had begun to move switch direction during the release of the news.

USDCHF – After the Announcement

When the Import Prices news report was announced, the volatility was moderate in the beginning but reduced later in the day. The price which was showing bullishness prior to the news continued with the same sentiment. Thus, traders can follow their strategy without any hesitation as the news barely induce high volatility.

AUDUSD – Before the Announcement

Before the announcement of the report, the market was in an evident uptrend making higher highs.

AUDUSD – After the Announcement

Right when the report was announced and the North American session began, the market reversed direction from an uptrend to a downtrend. However, the price failed to make a higher high. The volatility increased significantly, which can be seen from the volume indicator.

The Import Prices is an essential indicator in as it is a factor of calculation for fundamental drivers. As we saw, even though this indicator did not really bring in volatility in the market, it indirectly does significantly affect the currency prices when combined with other drivers. Cheers!

Forex Fundamental Analysis

Why ‘Personal Spending’ is Considered a Crucial Fundamental Indicator?


Personal Spending makes up one half of Consumer Spending. As consumer spending drives total GDP, tracking Personal Spending patterns and changes can help us better understand the direction of the economy’s health.

What is Personal Spending?

In the broader sense, Personal Spending generally refers to Consumer Spending, which is a significant economic indicator as it drives about 70% of the total GDP. Consumer Spending is made up of two main components: Personal Saving and Personal Spending. Consumer Spending refers to the amount spent to meet daily needs and personal expenses to conduct one’s lifestyle.

In other words, it refers to the money paid for goods and services by the general public. The products and services can include all that we, as an individual, consume to live our lives. The groceries, the movies, the savings, the internet bills, phones, etc. all these are part of our lives that the Consumer Spending measures. Personal Spending in this regard is the more specific component of Consumer Spending.

Consumer Spending = Personal Spending + Personal Savings

Economic Reports

The United States Commerce: Bureau of Economic Analysis measures personal Spending in the form of Personal Consumption Expenditure (PCE) or Consumer Spending Report. PCE report measures the goods and services purchased by individuals and NonProfit Institutions Serving Households (NPISHs)—who are resident in the United States.

PCE also includes purchases by military personnel stationed abroad, regardless of the duration of their assignments, U.S. government civilian, and by U.S. residents who are traveling or working abroad for one year or less.

BEA releases the PCE report in the last week of the month for the previous month. Quarterly and Annual reports, Seasonally adjusted versions of the same, along with Personal Saving Reports, are all available under the release titled “Personal Income and Outlays.”

Why Personal Spending?

Personal Spending is one-half of the Disposable Personal Income (the net amount left after all tax payments from the gross income), and it includes the necessities and personal expenditures. Hence, some may refer to Personal Spending to the expenses incurred by money spent on personal enjoyment like going to Restaurants, Trips, buying jewelry, clothing, movies, gaming, concerts, etc.

In this sense, Personal Spending takes a hit during job loss, tight monetary conditions, or recessionary periods as people cut back on personal comforts and tend to save more for the future. Decreased Personal Spending is not a  good sign for the economy as it withdraws money from the system and stays in people’s bank accounts or pockets only.

The correlation between Personal Spending and the GDP of a nation is strong. As we can see below, during recessions, the GDP and PCE (Personal Expenditures Report)  flat out from their usual and trend sideways or downwards (during more extended recessionary periods), otherwise steadily increase at the same pace.

Real Gross Domestic Product (In Billions)

Personal Consumption Expenditures (In Billions)

How can Personal Spending numbers be used for analysis?

Savings are for future consumption, and Personal Spending is for current use. Personal Savings are suitable for the long-term growth and health of the economy, while Personal Spending is more beneficial for short-term growth. Personal Spending becomes essential when an economy is going in or coming out of recession. It is during these periods of economic contraction-edges where changes in the spending numbers can be used to predict the trend of the economic recovery.

Investors can also monitor the Personal Spending sections of the PCE report and determine the spending patterns of people and predict sectorial growth or slowdowns. For example, a few decades ago, the service sector was not as dominant as it is today. Today about 64% of the expenses go towards services. This change in trend is easily observable through PCE. Through PCE, we can predict which markets are likely to see a boom or slowdown.

For illustration, see the below graphical representation extracted from the BEA official website, of the primary services that people are spending their money on. HealthCare and Housing Utilities make up a majority of the services that are chosen by people when compared to other services like Transportation, or Recreation. Such analysis is very useful for investors and stock traders to assess the industrial performance of different goods and service sectors.

(Image Source – BEA official website)

Impact on Currency

Personal Spending is a proportional indicator. Higher numbers in the Personal Spending section signals a growing economy and hence is good for the currency. Dip in the figures results in currency depreciation. As drop signifies, people are spending less, which results in business slowdowns in the economy, which ultimately results in lower GDP print, which is depreciating for the currency.

Personal Spending is a mild impact indicator as the retail sales figures precede the PCE monthly reports where similar tradable conclusions can be drawn as that of PCE reports. A healthy and growing economy would be reflected in the Personal Spending numbers as the people make up the economy. It is important to remember that Personal Spending is a reflection of the present financial situations of the population and hence only shows what the current economic status of the nation is.

It is a coincident indicator in this sense and is dependent on macroeconomic factors like the government’s policies, Quantitative Easing, inflation, etc. which direct the money flow. Hence, it is the effect in the cause-and-effect equation. It reflects the results of an action rather than the act itself. 

Sources of Personal Spending

The monthly PCE numbers releases can be found on the official website of the Bureau of Economic Analysis – Personal Income and Outlays-PCE

As opposed to Personal Spending, you can find the Personal Saving Rate in these sources – Personal Saving Rate & Personal Income and Savings

Personal Spending data and statistics of various countries can be found here – Trading Economics – Personal Spending

Impact of the ‘Personal Spending’ news release on the price chart 

Now that we have a clear understanding of the Personal Spending economic indicator, we will now watch the impact of the indicator on the value of a currency. As Personal Spending measures the change in the inflation-adjusted value of all Spending by consumers, it accounts for a majority of overall economic activity. This report tends to have a mild to severe impact on the currency.

The below image shows the previous, forecasted, and latest Personal Spending data of the U.S., which is announced on a monthly basis. It is published by the Bureau of Economic Analysis and is the authoritative agency that conducts surveys across the country. A higher than expected reading is considered to be positive for the economy, while a lower than expected reading is considered to be negative. Let us examine the reaction of the market for the latest release.

USD/JPY | Before The Announcement

We will start analyzing the impact of Personal Spending data on the USD/JPY currency pair, where the above image shows the state of the chart before the news announcement. It very clear that the pair is in a strong downtrend, which means the U.S. dollar is extremely weak. One of the reasons behind weakness in the U.S. dollar is that the market participants are expecting lower Personal Spending figures for the month of February. At this point, aggressive traders can take ‘short’ positions in the market, owing to pessimism in the market, with a stop loss above the recent ‘high.’   

USD/JPY | After The Announcement

After the Personal Spending data is released, the market as expected goes lower, and volatility increases on the downside. The actual data came out to be lower than the forecasted data, and this made traders to further sell the currency pair. We can say that the poor Personal Spending data accelerated the downfall and took the currency much lower. This is the ideal and risk-free situation when it comes to taking a ‘short’ trade. Thus traders can sell the currency pair soon after the news release and have a much higher ‘take-profit‘ as the indicator has a severe impact.

USD/CHF | Before The Announcement


USD/CHF | After The Announcement

The above images represent the USD/CHF currency pair, where the behavior of the chart appears to be a little different from the previously discussed pair. A similarity in both the pairs is that the major trend is down. But here, the price has shown some signs of reversal before the news announcement. This could even possibly turn into an uptrend. As the volatility is high on both sides, it is advised not to carry positions in the market before the news release. One could even face issues such as high spreads and higher mark-to-market loss.

The news announcement resulted in a sudden price drop, and the market reacts negatively to the Personal Spending data. Thus the market here too gets bearish due to poor news data. As one does not see any trend continuation candlestick patterns after the news release, he/she shouldn’t be going ‘short’ in the market right after the announcement. Only after one sees such patterns, he/she can enter the market.

AUD/USD | Before The Announcement

AUD/USD | After The Announcement

These are the images of the AUD/USD currency pair, where the characteristics of the chart are totally opposite from the above two pairs. Since the U.S. dollar is on the right-hand side, a down-trending market would mean strength in the U.S dollar. Therefore in this pair, the U.S. dollar is extremely strong contrary to the above pairs where it was extremely weak. When the volatility is so high on the downside, it is less certain that an even a negative news outcome can result in a reversal of the trend.

After the news announcement, the market moves a little higher, almost negligible, owing to bad Personal Spendings data of the U.S., but this gets immediately sold, and the ‘news candle’ closes with a  wick on the top. Therefore, we can say that the Personal Spendings data did not have a significant impact on this pair, and volatility increased on the downside.

This completes our discussion on Personal Spending and the impact of its news release on the Forex market. If you have any queries, please let us know in the comments below. Cheers.

Forex Fundamental Analysis

The Momentous ‘Consumer Price Index’ & How It Impacts The Forex Market


Consumer Price Index, in short, known as CPI, is one of the most closely watched Fundamental Indicators. It is the most direct measure of the current inflation in the economy that a citizen can look at and find out. Hence, Understanding the Consumer Price Index, its history, and the resultant effect it has on the market is very important to build an understanding of the macroeconomics of a nation.

What is the Consumer Price Index?

As the name suggests, the calculation of this index is from the viewpoint of the end consumer, i.e., a regular citizen who buys his/her daily needs from a local grocery store or market. Consumer Price Index, in the simplest sense, is the average of the most commonly purchased household goods and services like toothpaste, milk, grocery, petrol, etc. But instead of a simple average here, each good and service is assigned a certain weightage based on their importance or usage degree amongst the population.

For example, milk, which is a daily need for many consumers, will have a higher weightage in the mean price calculation than that of furniture, which we do not purchase daily or frequently. Also, when we say most commonly purchased goods and services, it covers a wide range of goods and services (over 80,000 items) and does not include rarely purchased items like stocks, bonds, foreign investments, or real estate.

How is the Consumer Price Index CPI calculated?

The Bureau of Labor Statistics (BLS) surveys the prices of 80,000 consumer items to create the index and publishes it monthly. The Consumer Price Index has two subcategories; one is CPI-W, which stands for Consumer Price Index for Urban Wage Earners and Clerical Workers. CPI-W statistics are published first, and later the CPI-U (Consumer Price Index for Urban Consumers) values are released. CPI-U is a broader statistic in terms of population and goods & services coverage.

CPI-U is the more accurate and complete statistic relatively as it takes the urban population, which represents about 93% of the United States population into account. While the CPI-W covers only about 29% of the population. Hence, It is the measure of an aggregate weighed in the price level of most commonly bought goods and services. The list includes items like food, clothing, shelter, fuel, transportation fares, service fees (water and sewer service), etc.

Consumer Price Index, whenever released, is given out as a percentage change, and here the change is concerning the previous number, which can be monthly, quarterly, or yearly.

Note: Here, the base year cost amounts to 100, and this base year is in the year 1982 to 1984, where the average amounted to 100. But the data released monthly is shown as a percentage increase or decrease concerning the previous period (usually the previous month).

Why is the Consumer Price Index important?

The importance of the Consumer Price Index is many-fold. First are the range and history of the data. With such a huge data set, the reliability is pretty high, and it usually depicts the macroeconomic picture of a country. For example, the history of CPIAUCSL (Consumer Price Index for All Urban Consumers: All Items in U.S. City Average) goes all the way back to 1947. Second is the frequency & direct ground-level nature of the statistic meaning this data brings out. CPI is a real-time reflection of the current economic situation faced by the end customer or citizens.

Thirdly, the change in CPI is useful to ascertain the retail-price changes associated with the country’s cost of living. Hence it is used widely to assess inflation in the United States. In this Index, there are many subcategories, wherein certain goods and services get included or excluded from the basket to give a more accurate picture of inflation in absolute or relative terms. For example, Core CPI strips away food, gas, and oil prices from the equation as the prices of these items are relatively volatile.

How can the Consumer Price Index be Used for Analysis?

Due to the diversity in the statistics, different sectors of economists can isolate and use the Consumer Price Index for their purpose. For example, the United States Bureau Of Labor Statistics provides indexes based on various geographic areas also. Moreover, they even release average price data for select utility, automotive fuel, and food items, which gives this Index the status of a key indicator in gauging multiple economic indicators.

Consumer Price Index is a widely used indicator for inflation measure. For other economic indicators like hourly wages and currency worth within the nation (dollar’s purchasing capacity to procure goods and services), CPI can be considered as a regulator. On average, for a developed nation like the United States, 0.2-0.5% of Consumer Price Index increase is common, and any number beyond these figures usually indicates volatility in the growth of the economy in either direction.

Sources of Consumer Price Index

The U.S. Bureau of Labor Statistics releases all the indexes that are mentioned above. This data can be found here – Consumer Price Index

You can also find the same indexes along with many others with a comprehensive summary and statistics on the St. Louis Fed website as given below.

CPIAUCSL (CPI for All Urban Consumers: All items in U.S. City Average)

This is a broadly used statistic for measuring the overall inflation. It includes Food and Energy prices, unlike CPIFESL. The information related to this index can be found here.

CPIFESL (CPI for All Urban Consumers: All items minus the Food and Energy in U.S. City)

It excludes volatile components like Food and Energy (Oil Prices) and gives more of a Core CPI change within the United States. The information related to this index can be found here.

Impact due to news release

In this section of the article, we will analyze the impact of the Consumer Price Index (CPI) on a currency right when the announcement is being made and see where the market finally gets to. The image below shows that the CPI data has a huge impact (Red box indicates high impact) on the currency, which means it might cause a drastic change in the volatility after the news announcement. Ideally, if the actual CPI numbers are greater than the forecasted numbers, it is good for the currency and vice versa.

We have taken the recent CPI data of Australia, which is quarter-on-quarter. The quarterly data is more important and impactful than the monthly numbers. The below image gives the 4th quarter data of CPI that was measured in January, and the next quarter data will be released in April. We see below that the CPI data for the 4th quarter was 0.7%, which is 0.2% greater than the previous reading. It is also 0.1% greater than the forecasted number. But, let us see how the market reacted to the data.

AUD/USD | Before The Announcement

The above image represents the chart of AUD/USD, where we see that the market is in an uptrend showing the strength of the Australian dollar. One of the reasons behind the uptrend is that traders and investors forecast the CPI data where they are expecting a 0.1% increase in the same. If the CPI numbers are increased more than expected by the ‘Australian Bureau of Statistics,’ it could be the best-case scenario for going ‘long’ in the market. However, if the numbers are below expectations, volatility could increase on the downside.        

AUD/USD | After The Announcement

Here, we see a sudden surge in volatility on the upside that after the news announcement is made. The reason for this is that the CPI got increased by 0.2%, where the market was expecting a 0.1% rise. The large green candle shows how impactful the CPI data is on the currency. From a trading point of view, one should not be chasing the market but instead, wait for a pullback at the nearest support and resistance area and then take suitable positions. The CPI data was so positive for the Australian dollar that the price does not even come below the moving average. Take Profit‘ for the trade can be at the new ‘high’ with a stop-loss below the opening of the news candle.

AUD/CAD | Before The Announcement

AUD/CAD | After The Announcement

The AUD/CAD currency pair appears to be in a ‘range’ just before the news announcement and is at the bottom of the range. An interesting way of positioning ourselves in the pair is by having small ‘buy’ positions before the news announcement. Because the forecasted CPI data is greater than the previous reading, and we are at a technically important level that is supporting our ‘buy’ positions. The news outcome makes the ‘support’ area work beautifully as the market shoots up to the resistance area. Here too, the data proved to be very positive for the Australian dollar as a higher CPI data drives the currency higher. We can hold on to our trades even if the price is at ‘resistance’ since the news data is very good for the currency, and it has the potential to break the ‘resistance’ and move further.

EUR/AUD | Before The Announcement

EUR/AUD | After The Announcement

In this currency pair, the Australian dollar is on the right-hand side, which means a positive CPI data should take the currency lower. We can see that the Australian dollar already strong as the market is in a downtrend, and the market participants are optimistic about the CPI data of Australia. After the CPI announcement, the volatility increases on the downside, taking the price to a new ‘low.’ Again, when we witness better than expected data of any economic indicator, we should not be chasing the market but wait for a retracement to key levels. In this case, since we don’t see a retracement after the red ‘news candle,’ only aggressive traders can take ‘short’ positions with the confidence that the CPI numbers were exceedingly better than before and that it will take the currency lower.

That’s about CPI and its impact on the Forex market. We hope you find this information useful and if you have any questions, shoot them in the comments below. Cheers.