The Foreign Currency Exchange or Forex has always worked on a global basis with governments and international corporations trading one monetary fund for another for exporting and importing purposes. Whenever someone travels to a foreign country there is a necessity to trade their domestic currency for a foreign one. The Internet made it possible to open even more doors in terms of global forex activity by allowing more investors, individuals, to trade on the changing currency rates. There are numerous factors that affect how much or how little activity is currently seen in the Forex market. Macroeconomics is just one part of the whole.
Macroeconomics is about performance, decision-making, structure, and behavior of an economy. In Forex it is about examining two economies to see which economy will have positive growth potential and which may be slower or even show no growth. To understand macroeconomic impact of global forex activity, one must first understand the premise behind investing in currency.
Investing in Forex
Pairs can be traveling sideways. A sideways movement means the pair is not going to gain any investment for the investor. One currency is not better than another, but performing about the same. Some like to look at the market as bullish or bearish, but not all experts agree with this outlook. Bullish means investments are going longer term. There will be an investment to make; however, an investment is for the long term for maximum return on investment. Typically it means the market investors are optimistic that the market is going in a positive or upward movement. A bearish outlook is pessimistic stating there will be a decline that will affect the overall price and return on investment.
The reason this thought premise doesn’t work so well in Forex is the nature of the market. One country’s economy may be very bearish, but pairing it with a bullish economy of another country means an exchange of the weaker currency for the express purpose of increasing the investment in another currency as rates continue to improve. In other words buy in at a low price and let the positive investors increase the currency rate and then sell into another pair.
Macroeconomic Reports
There are macroeconomic reports that are used as indicators. Investors trade on these indicators, which impacts the global forex activity. It is necessary to examine the GDP, price indexes, and unemployment rates to determine how the economy is functioning as a whole. International trade, including how many exports and imports are being made, are also a part of the macroeconomic details.
Reviewing the Current Situation
Now that there is a supporting background for understanding it is possible to look at the current situation to see what top macroeconomists feel is going to occur in the market for the quarter. It is important to remember that the exchange market can change quickly. A new report generated about macroeconomic topics can change the current situation in one day. It is the power of positive or negative viewpoints that have investors willing to trade, stay long term, or pull out.
Using the EUR/USD as one of the most commonly traded pairs, there are many economists who feel the quarter will be bearish or even sideways, while some feel it has been bullish and will continue to be so.
So the question is which currency do macroeconomists feel is currently in a bearish position? Given the pairing name the focus is on the Euro as the currency in question.
This means economists expect the Euro to have a subpar performance against the USD. For those looking at the USD for strength this is good news. It is particularly good news for USA as a country because the dollar has a chance to become stronger against the Euro based on the bearish sentiments.
Those who are more bullish believe new information from the Euro zone GDP growth, which is to be released will ensure a more positive quarter for the Euro where the EUR will gain slightly on the dollar. There is also the thought that positive effects from lower oil prices will have a resounding effect to strengthen the EUR. Historically the Euro zone has had stronger equities of late than the USA in terms of performance, which also indicates more positivity for the EUR versus the USD.
Summing up the Macroeconomic Impact
When conducting a review or report, it is imperative to remember that there are always positives in the Forex market and for global forex activity. The above focused on one currency to show where strength may lie on the EUR based on macroeconomic reports versus some who feel the EUR will be in a long term downswing.
Overall, global forex activity is increasing. It is a place to be investing. There is always a pair to be traded in the forex market. If you examine the news sites to see if international trade is increasing and for which countries this is an indication of where to invest and where many of the multinational corporations are putting their money and investments. For example the UK is seeing an increase in international activity for 2015, which suggests there is a place worth investing in due to affordable currency, which will mean heightened revenues for the company as well as a good investment in rising currencies or the GDP.
There are some areas of trouble like Greece and its debt relationship with China, which is making certain international trade a little worrisome. However, while it does affect certain pairs it does not affect the entire global situation because there are too many other currency pairs to invest in and places to focus on for positive impacts.
Lastly data suggests that the global economy as a whole while underperforming for three years is set to change. There are still some countries that will underperform, but strength in US economy, UK and European economies suggests a grand expansion of strength. This in turn ensures the macroeconomic data is impacting global forex activity in a positive light by increasing investor desire and sentiment to trade.