Basics

Fundamental Factors that Affect Forex


Lots of factors affect forex market trading prices 📈📉, but if we must begin somewhere, it certainly is in the economic tripod, of monetary policy, interest rates, and inflation. In this article we will cover the fundamental factors that affect forex trading and how to use fundamental analysis to take advantage of fx trading.

🎯  We expect to help you invest in forex efficiently and improve your results. Get extra forex trading insights from leading finance experts on the trading Academy and on our free forex Telegram channel.

💹  When trading forex, we suggest you consider long term results.

What you can learn ahead 🎓

  • Understanding the most relevant economic factors for forex
  • How to use fundamental analysis to trade
  • What is the best: AI trading or forex signals
  • The impact of elections in forex
  • How to use AI to trade forex and take advantage of the market
  • What are the best forex brokers to trade

Understanding the most relevant economic factors for forex 🧐

If you want to trade Forex, it is essential to be aware of some of the most important economic news.

forex trading news

We will clarify these points in the following paragraphs, to help you understand how to take advantage of the news to invest in forex.

Inflation 📈📉

Inflation is indicative of how much our money can buy (i.e. purchasing power) and how fast this capability is lost over time. A decrease in inflation is considered deflation. Countries like Venezuela and Syria continue to face huge yearly inflation rates.

It means their currency can’t hold its value as it continually faces devaluation in fronts of strong currencies like US dollars (USD 🇺🇸) or assets like gold.

Cycles of the economy

A growing economy creates an inflationary process by design, so small increases in the inflation rates are natural in any country. As the cost of goods increases, wages must increase as well, along with increases in business productivity, followed by consumer spending.

This economic cycle is important because if consumers stop spending there is the risk of growth slowing down while the price of goods could continue higher. Therefore, inflation and the economy both directly affect the value of the currency and forex market prices.

Negative inflation (deflation), and taxes also represent an important measure of the state of the economy, because when they decrease it means economic activity is weak and production factors are slowing. The unemployment rate is also closely monitored to measure the state of the economy.

Interest Rates 📈📉

The second very important part of this tripod is interest rates . The cost of capital can be measured in the interest rate charged by lenders, including how much a government or business can pay to borrow money or stimulate an influx of capital.

One specific interest rate is unlikely to control inflation in the real economy forever, so most of the central economic authorities try to manage their economic policies through periodic changes to the interest rates. These rates directly affect government bonds such as US Treasuries.

In an open market economy, there is transparent communication from officials every time governments raise or lower their interest rates.

More solid economies have lower interest rates and longer periods to pay, but less developed economies, such as certain emerging markets, have to offer higher rates to attract the same (or even less) amount of capital. There is usually a higher level of risk associated with high-paying interest rates when it comes to debt instruments such as bonds.

Monetary policy 🏦

Finally, our tripod is complete after we look at how monetary policy, together with inflation, and interest rates, affect currency exchange rates.

The monetary policy includes not just the policy towards interest rates, but also whether there will be stimulus packages put together, such as quantitative easing programs aimed to boost economic growth.

Also, central banks may suddenly intervene in forex markets to help strengthen or devalue their currencies, which can have an immediate or sustained impact on forex prices.

Such stimulus packages always come as a real cost to consumers, whether it be in increased prices or future tax increases.

At the end of the day, the monetary policy affects the value of the host country’s currency, which affects its value relative to other forex pairs.

The US dollar (USD 💵) is widely considered a strong reference relative to other currencies, along with the euro (EUR 💶), and the Great British pound (GBP 💷).

More recently we have experienced the exchange rates of non-regulated currencies, known as cryptocurrencies, including bitcoin, and ethereum, among other digital assets.

These new alternative assets have garnered interest for some of their inflation-resistant properties, with limited supply, yet their prices have been compared to speculative commodities, because of very high volatility and therefore risk.

US presidential election forex cycle

The presidential election cycle theory examines the connection between the 🇺🇸US presidential election, which is held every four years and patterns in the financial markets.

An examination of the association between US exchange rates (fx pairs with USD) and presidential cycles indicates a significant economic and statistical relationship. Research suggests the US dollar has shown greater gains when a Democratic president holds the highest office compared with a Republican White House.

The researchers found the US dollar appreciated during the term of a Democratic president but depreciated over the four-year term of a Republican president. This conclusion was based on a review of the years 1957-2016, using the exchange rate of the US dollar against several major currencies.

One explanation of this phenomenon is that Democratic presidents often implement policies that stimulate short-term economic growth and higher consumption, which causes the US dollar (USD 💵) to appreciate. A Republican administration, however, is usually identified with a pro-business agenda, which may result in a weaker dollar. President Donald Trump has often said that he wants to see a lower US dollar in order to make US exports more competitive and has not hesitated to criticise the Federal Reserve for not reducing interest rates, which would cause the greenback to depreciate.

The Impact of the US presidential election in forex 💹

When we talk about US dollar performance, we are talking about a currency pairing, so let’s examine two of the most important currency pairs in forex trading. The first one is EUR/USD 🇪🇺 🇺🇸 – the most popular forex pair.

According to the theory we explored earlier, a significant change in the value of the US dollar on the day after election day is unlikely, but whether it will appreciate or depreciate in the months after the polls will be largely dependent on which candidate wins. If Trump wins, the impact on the euro (EUR/USD) would be a lower US dollar.

Conclusion

In summary, money is what makes our daily life easier, but in the end, it is just another product with special characteristics.

Therefore, traders can trade, accumulate, borrow, and so on, and if they use their money wisely, and realize the effects of compound growth. If we are interested in some other factors that can influence forex, we can look upon a group of real economic indicators, like production, employment, and Gross Domestic Product (GDP).

These indicators represent how strong the economy is and its capability to generate value and wealth. On the international scale, as each country competes, forex creates a world market for currencies 💷 💶 💴 💵.

Within the monetary economy, we have factors such as speculation, international trade relations, and government debts, as relevant aspects to be aware of while trading forex.

These points have strong relations with expectations and informational flow, such as daily financial news and announcements. It is possible to feel its impacts very quickly and deeply, especially in our current society, with so many channels of communication.

The mood of the market can easily turn with a tweet of an important president or a leakage of information into the media.

It is very important to know that high risk and high return investments are complex multifactorial businesses.

Human cognitive capacity is limited to deal with this complexity; therefore, technology (especially AI 🤖) came to help and to improve our capability to act correctly.

Quality information is better than the quantity of information

Wiseinvest carefully reviews its information and content to provide an above-average experience for our subscribers by delivering quality material 📚.

Highly qualified professionals with extensive experience in economics, financial markets, and engineering produce this content.

Every time you use the automated AI trading system or receive a Wise AI forex signal alert, you can act on real-time information and go deeper into our educational material.

It is a decision you can make after receiving a lot of valuable information to help stay fully-informed.

The best way to trade forex ✅

There are two ways to invest with our AI in forex without concern about fundamental analysis.

1. Automated with AI-Trading. Check out the 3 steps to trade automated with our AI.

automated trading with ai bot

By trading forex automated with AI, you will save time and improve your performance without monitoring the market and managing trading platforms.

With Automated AI trading you do not need MT4 / MT5 and other trading platforms to invest in forex. All forex trades are automatically placed into your broker account every time that our AI system identifies a new worthy trading opportunity. You can monitor the AI trading performance in real-time directly on our dashboard.

Automated AI trading benefits ✅

  • Setup in 3 minutes.
  • Totally hands-off, from anywhere.
  • Invest from just $1.
  • APY of 40% over the past 13 years*.
  • Lightning-fast execution & no slippage.
  • No commissions, no management fees.
  • Portfolio with 40 different automatic strategies.
  • No MT4/MT5 or other platforms required.
  • Test with a risk-free practice account.
  • Trading results directly on our dashboard.

Don’t you have a broker account yet? Our AI is integrated to trade automated with the forex brokers FXCM and Oanda. Click here to open an account.

2. Manually with AI forex signals.

Wiseinvest also provides AI forex signals that perfectly fit into MT4, MT5, and any trading platform. To trade with our AI forex signals, you must simply copy the data you receive from each real-time signal into any forex brokerage account of your choice.

There are five unique variables for each AI signal, and each must be copied exactly, to match the performance of the signal as close as possible.

Each AI forex signal alert consists of the following five data points:

  • Symbol (forex pair)
  • Direction (long or short)
  • Position size (number of units or lots)
  • Take profit (price level to exit with maximum gain)
  • Stop loss (price level to exit with maximum loss)

Check out how to trade with our AI forex signals.

  1. Subscribe to a Wise-Plan.
  2. Open a Brokerage account. Check this article about the best forex Brokers.
  3. Set an amount and a position size on our Wiseinvest dashboard.
  4. Our AI will send you real-time trading alerts by email and Telegram.
  5. Copy the signals and paste into your Brokerage account.

All forex signals are sent every time that our AI trading system identifies a new trading opportunity. Our trading strategies are developed on a variety of time frames such as 4 and 8 hours.

Wiseinvest AI forex signals are Market Orders and you do not need the entry price. You can copy each signal while it is available on our dashboard. We do this way to assure that traders will just place signals while they are good to be traded.

You can trade forex with our free forex signals clicking here, or with our Premium subscription that provides you unlimited AI signals and automated AI trading in partner brokers. Whether you are a beginner or a professional forex trader, our AI trading system can help you save time and improve your trading performance. Get started with free AI.

When investing through Wiseinvest automated AI trading or AI forex signals, you do not need to calculate pips and change the leverage in your forex broker account. Learn more about leverage in forex trading by clicking here.

What is the AI performance in forex trading?

The Win Rate of our AI varies according to the period and can reach up to 95%. The performance is based on the efficient frontier measurement metric, which means that our model is profitable whenever the Win Rate is greater than 60%. All strategies of our AI trading system seek stable returns and sufficient results to achieve an average return of 40% per year (APY), without the use of high leverages.

We understand that what matters in forex trading is the final result. Thus, the investor needs to consider that Win Rate is not always the best metric to measure performance in forex, as other signal providers disclose. For instance, out of 100 trades, only 1 trade may be enough loss to make the 99 trades not profitable. In this case, the Win Rate would be 99%, but the final result would be unfeasible (negative).

We focus on the return of 40% of APY and not just on Win Rate.

It is essential to observe that forex brokers may charge spreads, commissions, and overnight fees in your trading account, and these factors can affect the AI performance. You can check our forex trading track record to understand more about AI trading performance by clicking here.

How much do I need to trade forex with AI?

You can start in forex trading with free AI signals or an AI trading account and deposit just $1 in the broker. It is also possible to test using a risk-free practice account with our AI trading system. However, to do efficient risk management in real accounts, we suggest you start from at least $100. Notice that some forex brokers require different initial deposits to trade forex.

What is the trading strategy of our AI?

Our AI strategy is the combination of different AI trading systems, with more than 100 features, that define 40 different strategies which simultaneously consider: Quotes of the 28 forex pairs, Supports & Resistances in different time frames, Trends and Counter-trends, Cross-indicators, Index of each pair, Economic Calendar, Investors Sentiment.

Our AI analyzes those fundamental, technical, and sentiment factors that affect forex trading, and all criteria are evaluated in real-time using different weights. After completing the analysis, the choice of the signal emission strategy is made considering the increased likelihood of short-term profit and the amount available for investment.

Using technical analysis, our algorithm considers not only the patterns of various trends, including support and resistance levels and cross-indicators, but our AI is also able to create its own real-time index for each currency pair, that is used to identify what is the best direction and target.

In relation to fundamental analysis in forex, the AI makes a correlation within the economic calendar to find news data that can affect specific currency pairs.

Takeaways 📚

  • None can control the three macroeconomic prices simultaneously (inflation rate, monetary policy, and interest tax rates).
  • Poor economic activity has a bad influence over financial markets and currency rates for a given economy.
  • Analyzing the forex is a multifactorial problem, made easier with the use of automated AI trading and AI forex system, to help achieve better results.

There is no Artificial Intelligence smart enough to predict what governments are going to do next, but we can help warn you sooner!

Disclaimer: Forex and Contracts for Difference (CFDs) are complex instruments and come with a high risk of losing money due to leverage. Forex trading is not suitable for everyone. You should consider whether you understand how forex and CFDs work and whether you can afford to take the high risk of losing your money.

The forex brokerages displayed shall disclaim the overall performance of traders in their platforms. Oanda warns that 76.8% of retail forex traders lose money trading CFDs. XTB warns that 80% of retail forex traders lose money trading CFDs. FXCM warns that 74.74% of retail forex traders lose money trading CFDs.

The performances aforementioned are not related to Wiseinvest AI forex trading and AI forex signals system. You can check the performance of our AI forex system on our dashboard.