What Drives Short Term Currency Movements?

World events
Depending on the severity of the news, a world event can have an immediate substantial impact upon a currency. The British Pound for example took an immediate beating when the press reported they might have exaggerated Iraq chemical weapons plans.

Comments, statements by government officials
Direct statements or hints of changes in government policy by government officials will be immediately reflected in currency rates. For example, when former ECB president Dusenberg reiterates that Euro rates are at the correct level, the Euro jumps a quick 30 points.

Unexpected changes in economic numbers
When scheduled economic numbers are not close to what was expected the movements in the currency can be dramatic. We use these opportunities to initiate trades on a regular basis. Example. U.S. employment fell 100,000 versus an expected rise of 30,000; USD fell 1.5% in a few hours.

Technical – charts
Breakouts on charts sometimes cause a good move to develop – and sometimes not. Failure to follow through on breakouts often causes a severe reaction in the opposite direction. For example, EURUSD could not hold a break above 113.30 and promptly fell 70 points.

Stock markets
Foreigners have been net sellers of U.S. stocks for quite awhile now. However, the amounts lately have not been great. Do not look for the USD to follow the stock market closely as it did during the boom. You will be disappointed if you do.

Bond markets
Foreigners, especially foreign Central Banks have huge bond holdings. They are very much concerned with capital loss due to rising interest rates. In fact on those days when the 5 and 10 years auction results are announced at 1pm EDT, the currency markets are very quiet, especially in Europe.

Commodity markets
Some currencies react to significant changes in agricultural product price and gold, Australia for example.

Newspaper articles, interviews, and rumors


All can cause a short-term move in a currency.


Note:

Jimmy Young is a seasoned institutional forex trader having 20 years of experience with different banks. He headed up bank FX dealing rooms. He is FX profitability consultant to major European private bank. He manages funds and also trades personal money. Between 1981 and 2004 he was a foreign exchange trader at following banks: Societe Generale, Julius Baer, Fuji Bank, Indosuez, Erste, Hill Samuel, Manufactures  Hanover, Paribas, European American. www.EurUsdTrader.com