1GDP
The GDP measures the total value of all goods and services that are originated from
the country; the GDP figure indicates the rate of the country’s expansion or
contraction based on output and growth. A healthy GDP figure usually adds bullish
sentiment to the currency of that country, especially if it exceeds the market’s
expectations
2Unemployment rate
The unemployment data reports the state of the labour market of a country. The
lower the unemployment rate, the more positive it is for the country’s economy, and
hence its currency, as consumers would feel more confident about spending if they
have jobs, and that would eventually impact on companies and businesses in the
country, generating more output
3Trade balance data
Another widely watched economic indicator is the trade balance data. Trade
balance measures the difference between the value of imports and exports of goods
and services of a country. If a country exports more than it imports, it has a trade
surplus. If imports exceed exports, then the country will end up with a trade deficit
which does not bode well for that country’s currency because that currency has to
be sold to buy other foreign currencies in order to pay for those imported goods and
services
For example, if the US imports an increased amount of goods and services from
Europe, US dollars will have to be sold in exchange to buy euros to pay for those
imports. The resulting outflow of US dollars from the United States could
potentially cause a depreciation of the US dollar against the euro or other
currencies, and that can affect market sentiment surrounding the USD. The
opposite scenario is true for a country that is experiencing a trade surplus. However
market sentiment of a currency can still be bullish despite that country having a
trade deficit, as the net amount of trade deficit could be covered by an equivalent
or greater amount of capital investment pouring into that country, and thus would
not be a cause for concern
Geopolitical risks
Geopolitical risk refers to the risk of a country’s foreign or domestic policy
affecting domestic social and political stability in another country or regional zone
Global geopolitical uncertainties such as terrorism, transitional change of
government or nuclear threats can cause investors to lose faith in some particular
currencies, and they may prefer to shift their assets into a safe haven currency when
these circumstances arise. Market sentiment is very sensitive to such geopolitical
developments, and can cause a strong bias towards a particular currency
For example, during periods of high tension in the Middle East in 2006, the market
formed a very bullish sentiment towards the US dollar, which became the preferred
currency to hold in such turbulent times, replacing the traditional status of the
Swiss franc as the safe haven currency. Forex traders should be keenly aware of the
current geopolitical environment in order to keep track of any potential change in
market sentiment, which could impact currency prices