Economic data and exchange rates

A question from Yahoo! Answers:

How often and when does the fed update their rate?

And what other economic data release do you think has substantial impact on the EUR/USD pair? ie non-farm payroll , unemployment rate, trade balance, what else? I am a fundamentalist trader and would like to exchange thoughts with others. 🙂

The Federal Reserve’s Open Market Committee (FOMC) meets eight times a year. Whether interest rates are going to be changed at a meeting is entirely up to the FOMC.

As to the data that has substantial impact on the EUR/USD pair, trade is not a big issue for this particular exchange rate. More than half of U.S. international trade is with Canada, Mexico, Japan, China, and the UK. The euro zone is a minor trade partner of the U.S.

To gain some insight into the EUR/USD dynamic, you need to look at disparities in real interest rates (nominal interest rate minus inflation) and yield curve slopes. This can be done based on data from government bond markets, which are available continuously.

You could also dump the structural approach to exchange rate forecasting altogether and use a non-structural approach (ARMA or ARIMA modeling) to forecasting exchange rates.

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