I need to get a better understanding on how fundamentals drive forex. Experts share that GDP announcements, employment rates, trade balances, etc. all can have a considerable and immediate impact on the direction of a currency pair. As a novice I have no doubt this is true, but I need to get a deeper understanding of what economic indicators have the potential to move the market the most.
Today I’m going to start monitoring how some of these reports/announcements influence the EUR/USD pair. I’m using the economic calendars found on Forex.com and Dailyfx.com. For now I’m primarily just analyzing the events identified to have a ‘high’ impact on the rate. Today there were five high impact events identified:
- 12:55 AM: German Unemployment Change/Rate
- 2:00 AM: Euro Zone Domestic Product
- 5:30 AM: US Personal Consumption Expenditure
- 7:00 AM: ISM Manufacturing
- 7:00 AM: ISM Employment
The German unemployment rate remained the same at 5.7%, just as expected. The report was released at 12:55 AM PST. I analyzed the EUR/USD minute chart and saw that the Euro closed at 1.18196 at 12:55 AM. Three minutes later the Euro dropped to 1.18147, or a decrease of 4.9 pips. By 1:05 AM the Euro rose to a high of 1.18325. Ten minutes after the announcement the trading range was 17.8 pips.
Although there was a spike in the Euro the rate returned back to the prior levels within 15 minutes or so. I can surmise that since the unemployment rate met expectations there was no catalyst for a sustained move in the Euro.
Euro Zone Domestic Product
According to DailyFX the actual number for the Euro Zone Domestic Product was the same as the expected number (0.6% / Quarter over Quarter). Annualized, the Euro Zone economy is expanding at a rate of 2.3%. This is good news for the Euro, but since it’s within expectations I would again expect it to have little impact. Surprisingly, the immediate price action was negative for the Euro, the dollar strengthened for six consecutive minutes. The rate got as low as 1.18067, or a decline of 12.6 pips. As you can see in the chart below the rate recovered most of its losses until it fell back down again to around the same level at 2:19 AM and then again around 2:37 AM. However, it still climbed back.
I can’t say for sure whether this is an actual reaction to Euro Zone Domestic Product report or part of just the normal noise of trading.
US Personal Consumption Expenditure
This number was forecast to be 1.4% but it came in at 1.5%. Although it beat expectations the Personal Consumption number showed the lowest growth since February. As you can see the increase led to temporary dollar strengthening, a loss of 9.9 pips in 20 minutes. However, by 6:00 AM (30 minutes post the report release) the Euro returns to its previous level. Again, I think because the number was so close to expectations it didn’t offer any opportunity for any major movements.
ISM Manufacturing and Employment
The expected ISM number was 56.4, but the actual number came in at 56.3. In June the number was 57.8, so July’s number reflects a decrease. However, any number above 50 represents an expansion in US manufacturing (12% of the US economy). The employment number beat expectations of 55.1, coming it at 55.2. However it was still lower than June’s 57.2.
From what I can tell these number had little long term effect on the rate. After the 7:00 AM PST announcement the Euro rises to 1.18383, a boost of almost 17 pips. However by 7:31 AM, just over 30 minutes later, the Euro settles back down at 1.18223, 1.4 pips below the 7:00 AM close. I suspect this is simply because there were no surprises in the ISM numbers.
It doesn’t appear to me that any of today’s releases greatly impacted EUR/USD. If any of today’s announcements truly affected the rate, it was only a temporary boost or decline and corresponding pip range wasn’t very significant. This could be because the releases are all inline with estimates, or perhaps these particular releases don’t ever really have much of an impact whether they meet estimates or not. Hopefully I can stay diligent tracking these releases over time. I’ll need this experience so I can have a more in-depth and detailed understanding of the impact that fundamental economic data has on specific forex pairs.