Using Structural Themes in Currency Trades

Themes in the forex market are the driving force behind currency trades. When commentators and analysts discuss the action in the forex market, they are referring to the themes at play. Themes differ in their strength, longevity and impact.

Structural themes center around how a country’s economy is performing. Structural themes can be passing. They can dominate one day or for several weeks to months and then disappear. Structural themes don’t bear as much weight on a currency as do interest rates, growth inflation and stability but they do influence and magnify these other themes.

Structural Themes

  • Employment

Employment is a key indicator to an economy’s long-term performance. It is a primary force behind interest rates. When employment is rising, the long-term economic outlook is positive. But when employment rates begin to take a downturn, future economic prospects look grim. Interest rate cuts are sure to be made by central bankers as well in response to the fluctuation in employment rates.

  • Deficits

A country’s significant fiscal and trade deficits have a negative effect on currency values.

  • Geopolitical issues

In today’s world, geopolitical issues can make a currency vulnerable. The United States dollar is the most sensitive to geopolitical issues due to the size of its economy, its reliance on global trade and its potential military involvement in other nations.

  • Political elections or uncertainty

Major governmental shifts brought on by political elections can affect the popularity of the major countries currencies. But shortly after the political instability is resolved, the currency can spring back into favor.