Europe had its happy and sad moments in the Forex Market. Right now, multiple events affected Europe’s situation in the Forex Market, like the Brexit situation or the change of rules in the margin requirements two years ago, impacting the trading costs in the Forex Market. Many economic reports have also affected Europe’s currency in the Forex Market.
The Brexit is the term given in 2016 to the British exit from the European Union.
In June 2016, people of the United Kingdom voted on a referendum for a British separation from the EU, which would mark a significant moment in the history of both Britain and the European Union.
After the election was made, causing a victory for those who voted yes on the Brexit, a colossal shockwave affected the economy in global markets and creating the United Kingdom to lose its top AAA credit rating.
Right after the Prime Minister announced her decision to hold a vote on General Election, all markets in the UK plunged, finishing the day with the FTSE 100 2.5% down. This led its investors to an edge, making them re-evaluate their strategies, adopting more cautious approaches.
Since then, investors had reduced their appetite for piling money into the UK, dragging the value of the Pound downwards and causing an elevation to the stock prices of the most prominent global firms in the UK.
All these currency exchanges, made the experts to expect particular volatility in the Forex market, mainly with the EUR/GBP and GBP/USD, as well as in UK indexes.
Europe’s 2016 margin regulations
In October 2016, the European Commission made the announcement, where they publish the details on variation margin requirements for currency forwards and derivatives.
These requirements would require banks, investment funds, and financial institutions to set part of their capital aside as a “good faith deposit,” these would work for holding securities which are typically used to hedge against FOREX price swings.
Applied on January 3, 2018, these regulations should ensure that financial market users have a buffer to absorb potentially substantial losses from their positions and refrain from taking way too many risks using their portfolios. Said regulations won’t only protect their investors but will also serve protection to customers as well.
By the time the regulations were stated, it was up for debate during the Brexit negotiations whether or not to cover the United Kingdom with these margin regulations
These would not affect that many broker traders since much of the impact on costs and liquidity would go towards larger financial institutions, making the impact on the retail trading industry to be limited
Different economic reports that could and have affected the Euro in FOREX markets
Many FOREX traders keep an eye on certain events which could have significant impact on the euro and euro-based currency pairs.
But, with more than hundreds of economic reports that come out of the eurozone each year, and many of them being relevant to the FOREX market, some traders tend to get lost in which types of reports are trade-worthy reports; from many reports, not all of them are relevant, and there are a small number of them that traders should be aware of.
With a high number of members in the European Union, only a few of them are large enough to generate economic reports that could affect the currency. With France, Italy, Germany, and Spain representing the four of them together three-quarters of eurozone’s Gross Domestic Product (GDP), which is three-quarters of 12 trillion GDP.
When talking about the FOREX market, FX traders tend to care about more in economic reports coming out of Germany and France, which give more weight in the FOREX market than other countries.
These reports would also work to analyze other countries since the key areas can be seen in other countries’ reports. When checking economic reports, you should pay attention to monetary policy, prices, confidence and sentiment reports, payments balance and Gross Domestic Product.
When checking prices and inflation, the key measure in the eurozone would be the Consumer Price Index. The CPI is an indicator that calculates the cost of a basket of goods that an average household would buy. FOREX traders follow the Core CPI; the core CPI excludes energy and food prices.
Why? Well, energy and food prices can be volatile and can be easily influenced by temporary supply and demand imbalances, as well as other factors, like weather reports, which can distort the CPI number.
Every currency has monetary policies by its respective central bank. In the Euro’s case, its currency is affected by the European Central Bank (ECB), their decisions regarding interest rates have a massive impact on the Euro; so, it is recommended to keep an eye on their decisions.
With hundreds of economic indicators, traders would do an in-depth analysis to those who are most important and would give better valuable analysis.