The shifting importance of fundamentals is partly because of the aforementioned shift in the Federal Reserve’s focus toward inflation. However there are other factors that play a role as well. Overall market activity has declined over the past few years. As central banks wind down their tightening cycles, there is less uncertainty in the markets. In contrast, traders spent the past few years guessing how far the Fed would raise interest rates and when it would eventually stop.
As a result, the average daily trading range of the EUR/USD has shrunk from 111 pips in 2004 to 104 pips between June 2005 and June 2006. Fundamentals are important for every trader — even technical ones. Knowing when economic data can cause the most volatility in the markets is a valuable piece of information. Depending upon your specific trading strategy, it will help you to decide when to be in the markets and when to stay out.
As the world changes, so does the importance of different economic data. This is why it is imperative for traders to stay on top of what is moving the markets and, more importantly, when. Contrary to popular belief, the days that non-farm payrolls are released are not the only ones that can cause sharp moves in the forex market.
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