TL;DR
- Biggest movers: central bank policy, inflation & rates, growth data, risk sentiment, and geopolitics.
- Don’t trade headlines—trade expectations vs. outcomes.
- Build a weekly plan: calendar, base case, scenarios, triggers, risk limits.
1) Central Banks & Interest Rates
- Policy rate path: Hike → usually currency appreciates; cut → often depreciates (all else equal).
- Forward guidance: Language shifts (“higher for longer”, “data-dependent”) can move FX more than the decision.
- Balance sheet/QE/QT: Liquidity injections (QE) tend to weigh on the currency; QT can support it.
Watch: Fed, ECB, BoE, BoJ, SNB, BoC, RBA, RBNZ; dot plots, pressers, voter splits.
2) Inflation & Growth (Macro Data)
| Indicator | Why it matters | FX impulse |
|---|---|---|
| CPI/PCE | Drives real rates & policy | Hot CPI → stronger currency |
| PMIs (Mfg/Services) | Early growth signal | Above/below 50 can swing FX |
| Jobs (NFP, Unemployment, Wages) | Labor tightness → inflation pressure | Strong prints boost currency |
| GDP (q/q, y/y) | Headline growth | Positive surprise supports FX |
| Retail Sales, Durable Goods | Demand pulse | Beats/lags shift expectations |
Pro tip: The surprise vs. consensus moves price, not the absolute number.
3) Risk Sentiment & Safe Havens
- Risk-on: Cyclicals/“beta” FX (AUD, NZD, NOK, SEK, some EM) often rise.
- Risk-off: USD, JPY, CHF tend to catch bids; high-yield EM FX can sell off.
- Drivers: equities, volatility (VIX), credit spreads, global headlines.
4) Geopolitics & Event Risk
- Elections, fiscal standoffs, sanctions, wars, trade disputes, natural disasters.
- Impacts via growth expectations, risk aversion, and terms of trade.
5) Terms of Trade & Commodities
- Petro FX: CAD, NOK, RUB often correlate with oil.
- Metals/China cycle: AUD, NZD react to iron ore, gold, dairy, and Chinese data.
- Positive terms of trade ⇒ current-account support ⇒ stronger currency (structurally).
6) External Balances & Capital Flows
- Current account: Surpluses (e.g., chronic exporters) can underpin FX.
- Portfolio/FDI flows: Rate differentials and risk drive bond/equity inflows.
- Debt sustainability: Perceived fragility (twin deficits) can pressure FX in shocks.
7) Market Structure & Positioning
- COT reports, prime broker flow, sentiment indices indicate crowded trades.
- When narrative turns, position squeezes accelerate moves.
- Seasonality: Month/quarter-end rebalancing, holiday liquidity pockets.
8) Micro: Liquidity, Sessions & Technicals
- Sessions: London & London–NY overlaps = peak liquidity/vol.
- News windows: Spreads widen; expect slippage.
- Technicals: DXY & key FX pairs respect HTF levels; confluence with macro = higher odds.
Practical Framework: From Calendar to Trade
- Map the week: Mark Tier-1 data (CPI, NFP, PMIs, central banks).
- Set a base case: Hawkish/dovish tilt? Growth improving/deteriorating?
- Scenario tree: Beat / inline / miss → predefine directional bias & invalidation.
- Triggers: Level + event (e.g., CPI surprise + break of 200-DMA).
- Risk: Position size for ≤1–2% account risk; use hard stops.
- Review: Track surprise indices and whether price reacts or fades news.
Quick Reference: Who Moves What
- USD: Fed path, global risk, US growth/exceptionalism, fiscal.
- EUR: ECB stance, PMIs, periphery spreads, energy.
- JPY: BoJ policy/YCC tweaks, global yields (carry), risk-off.
- GBP: BoE vs. inflation persistence, UK growth/fiscal.
- AUD/NZD: China data, commodities, RBA/RBNZ relative hawkishness.
- CAD: Oil, BoC, US cycle spillovers.
- CHF: SNB policy, European risk hedging.
FAQ
What influences FX the most right now?
Whichever factor most shifts rate expectations (inflation or central bank communication) usually dominates.
Do geopolitics always hurt a currency?
Not always—exporters of scarce commodities can benefit if terms of trade improve.
Is technical analysis useful in macro FX?
Yes—levels/timeframes help time entries around macro catalysts and manage risk.
Conclusion
FX moves on expectations about growth, inflation, and policy—filtered through risk sentiment and flows. Build a process: calendar → scenarios → triggers → strict risk. Consistency beats prediction.