What Moves Forex Prices? (News, Economics, Supply/Demand) 🌐

Demand Greater Than Supply:

• Excess demand (buyers) for a currency
• Currency's value rises
• Buyers must bid higher to acquire limited supply

Example:

• Strong US economic data releases
• Global investors want USD to invest in US assets
• USD strengthens (EUR/USD falls, USD/JPY rises)

Supply Greater Than Demand:

• Excess supply (sellers) compared to demand
• Currency's value falls
• Sellers accept lower price to offload excess

Example:

• Weak UK economic data releases
• Investors sell GBP to move capital elsewhere
• GBP weakens (GBP/USD falls, EUR/GBP rises)

Currency Price Movement = Function of Supply/Demand Imbalance

All other factors (economic reports, political news, central bank actions) are simply catalysts that shift the Supply/Demand balance.

Professional Understanding:

• Technical analysis shows WHERE supply/demand zones are
• Fundamental analysis shows WHY supply/demand is shifting
• Both are necessary for complete market view

Gross Domestic Product (GDP)

What It Measures: Total value of all goods and services produced

Frequency: Quarterly (every 3 months)

Impact:

• High GDP growth (3%+) = Strong economy → Currency strengthens
• Low GDP growth (below 1%) = Weak economy → Currency weakens
• Negative GDP (recession) = Very weak → Currency crashes

Consumer Price Index (CPI) - Inflation

What It Measures: Rate at which prices are rising for consumers

Frequency: Monthly

Impact:

• High CPI (above 3%) = High inflation → Central bank may raise rates → Currency strengthens
• Low CPI (below 1%) = Low inflation → Central bank may cut rates → Currency weakens

Why It Matters: Central banks target 2% inflation. Deviations force policy changes.

Employment Data (Non-Farm Payrolls - NFP)

What It Measures: Number of jobs added/lost (excluding farm workers)

Frequency: Monthly (first Friday, 8:30 AM EST)

Impact:

• Strong jobs growth (200k+ jobs) = Healthy economy → Currency strengthens
• Weak jobs growth (below 100k) = Weak economy → Currency weakens
• Job losses (negative) = Recession fears → Currency crashes

Why It's King: Employment = consumer spending = economic growth. NFP is the most watched indicator.

Example:

• NFP expected: 180k jobs
• NFP actual: 340k jobs (massive beat)
• USD surges +150-200 pips in 30 minutes

Retail Sales

What It Measures: Consumer spending (70% of GDP in developed economies)

Impact:

• Strong retail sales = Confident consumers → Currency strengthens
• Weak retail sales = Cautious consumers → Currency weakens

Critical Concept: The market often moves before the official release.

The Process:

1-2 Weeks Before:

• Analysts publish forecasts
• Institutions position based on predictions
• Price begins moving in anticipated direction

Day of Release:

• If actual = expected: Price may not move much (already priced in)
• If actual beats/misses: Violent reaction to correct the misprice

Central Bank Decisions (Highest Impact)

Events:

• Interest rate announcements
• Monetary policy statements
• Central bank press conferences
• Quantitative easing programs

Impact: Can move pairs 200-300+ pips

Example:

• Federal Reserve raises rates by 0.50% (hawkish)
• USD surges across all pairs
• EUR/USD drops 250 pips in 2 hours

Key Reports:

• GDP (quarterly)
• CPI/Inflation (monthly)
• Non-Farm Payrolls (monthly)
• Retail Sales (monthly)
• Manufacturing PMI (monthly)

Impact: 50-150 pip moves typical

Events:

• Elections (presidential, parliamentary)
• Trade disputes (tariffs, sanctions)
• Budget crises (government shutdowns)
• Geopolitical conflicts

Impact: Creates uncertainty → Flight to safe havens

Example:

• Brexit referendum results (June 2016)
• GBP crashed -800 pips in 12 hours

Professional Tool: Economic calendars (ForexFactory, Investing.com, Bloomberg)

What They Show:

• Date and time of release
• Currency affected
• Importance (Low, Medium, High)
• Previous, Forecast, Actual values

How to Use:

Before Trading Day:

• Check calendar for high-impact events
• Note times (convert to your timezone)
• Plan: Trade before, avoid during, or trade after

High-Impact Event Protocol:

• Option 1: Close all positions 30 min before release
• Option 2: Move all stops to breakeven
• Option 3: Don't trade at all that day
• Option 4 (Advanced): Trade the post-news trend (15-30 min after)

Never: Hold a tight stop through NFP/CPI/Fed decision. Spread widens, slippage is extreme, stop hunts are guaranteed.

The most critical fundamental concept is the direct link between interest rates and currency demand:

The Chain Reaction:

Step 1: Central Bank Raises Rates

• Example: Fed raises rates from 2.0% to 2.5%

Step 2: Bonds Become More Attractive

• US Treasury bonds now yield 2.5% (vs. 1.5% in Europe)
• Higher return on USD-denominated assets

Step 3: Capital Inflows

• Global investors sell EUR, buy USD
• Need USD to invest in US bonds
• Massive demand for USD

Step 4: Currency Appreciates

• USD strengthens across all pairs
• EUR/USD falls (takes less USD per EUR)
• USD/JPY rises (receive more JPY per USD)

The Concept: Currencies with higher interest rates attract capital from currencies with lower rates.

Example:

Interest Rates (2024):

• US Fed Funds Rate: 5.50%
• ECB Deposit Rate: 4.00%
• Differential: +1.50% in favor of USD

Market Response:

• Capital flows from EUR to USD
• EUR/USD trends downward (USD strengthening)
• Carry traders borrow EUR (cheap) to buy USD (high yield)

Definition: Borrowing a low-interest rate currency to buy a high-interest rate currency, profiting from the interest differential.

Example:

• Borrow JPY at 0.10% (Bank of Japan rate)
• Buy AUD at 4.35% (Reserve Bank of Australia rate)
• Profit: 4.25% annual interest differential
• Plus: Any appreciation of AUD vs. JPY

Market Impact:

• Creates sustained demand for high-yield currencies (AUD, NZD)
• Creates sustained supply of low-yield currencies (JPY, CHF)
• Produces multi-month trends

Q1: Which economic report causes the most volatility in USD pairs?

The US Non-Farm Payrolls (NFP) report, released on the first Friday of every month at 8:30 AM EST.

Typical NFP Impact:

• EUR/USD: 80-150 pip move in first 30 minutes
• GBP/USD: 100-180 pip move
• USD/JPY: 80-120 pip move
• Spread widens from 0.5 pips to 5-10 pips
• Slippage: 5-15 pips common

Professional Protocol: Avoid trading 30 min before to 15 min after NFP.

Q2: Why does a currency often weaken after good news is released?

This is the classic "Buy the rumor, sell the fact" phenomenon.

The Mechanism:

Weeks Before:

• Market expects good GDP report
• Institutions buy currency in anticipation
• Price rises 100+ pips (pre-positioned)

Day of Release:

• GDP beats expectations (good news)
• Institutions take profits (sell)
• Price drops 50 pips (profit-taking)

Lesson: The move often happens BEFORE the news, not after.

Q3: What is a safe-haven currency?

A safe-haven currency is one that investors flock to during times of global uncertainty.

The Big Three:

• US Dollar (USD): World reserve currency
• Japanese Yen (JPY): Large trade surplus
• Swiss Franc (CHF): Political neutrality

What Causes Flight to Safety:

• Stock market crashes
• War or terrorism threats
• Banking crises
• Economic recession fears