Stagflation – Definition and Effects on the Economy

Stagflation in a country is the combination of inflation and economic stagnation. This phenomenon unites these two concepts, which when they occur at the same time are devastating for the economy. In other words, stagflation arises when a country’s economy is stagnant, that is, it does not grow and, at the same time, the cost of living rises, motivated by … Read more

What is a K-shaped economic recovery?

K-shaped economy recovery

K-shaped economy recovery

The outbreak of the COVID-19 pandemic brought an unprecedented slowdown to the world economy. Now, economists wonder what kind of economic recovery awaits us.

With COVID-19 spreading around the world and much of the world’s population confined, the economy stopped, global GDP fell sharply, and jobs were massively destroyed. With the world trying to return to a new normal and states trying to grease the economic machine, analysts are trying to explain what the economic recovery will look like.

Looking for a way to describe the resurgence of the economy, they have turned to the alphabet. This is where we speak of a recovery in the shape of U, V, W and L. But, the letter chosen by most economists to interpret the current economic outlook is K.

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Effects of Macroeconomic Events in the Forex Market

macroeconomic events in Forex

The traders and investors that trades in the Forex market in the short term focus mainly on the most important economic news of the week and how they can affect the prices of different currency pairs in the market. This can work well for many traders, however it is also important to take into account the most important economic events worldwide. The reason is that large-scale macroeconomic events usually generate significant movements in markets. The effect results in a change that goes beyond a simple variation in prices that may last one or two days, depending on its scope and importance, and have the potential to transform the viewpoint or fundamental consensus for periods that can last for months or years.

For example, events such as wars, natural disasters, international high-level meetings, political uncertainty, and others, often have significant physical and psychological effects on the financial markets like Forex because of their rarity and their irregularity. These events can cause radical changes in the currencies value, so the trader should keep an eye on them, analyze and understand the underlying direction of the market sentiment before and after the macroeconomic event occurs, and anticipate the market reaction. All this can help investors make high profits or at least allows you to prevent major losses that could even end up with your trading account.

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Personal Income and Consumption Index Indicator

Personal Income Consumption Index

General definition

The Personal Income and Consumption Index is a report from the United States that includes both personal income and consumption expenditures from all sources. This is a monthly figure, which always refers to the two previous months in which the Bureau of Economic Analysis of the Department of Commerce discloses the report.

In this case, the personal income and savings data, which is also covered by the report, provide economists and market analysts an insight into future spending (consumption) trends in the economy of the United States.

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Economic Cycle – Concept and Definition

The economic cycle is a series of phases that the economy goes through and that happen in order until reaching the final phase in which the economic cycle begins again.

Each cycle goes through periods of recession and periods of expansion. This phenomenon has been common throughout economic history, being known by other names such as “business cycles” or “cyclical fluctuations“.

It is known as economic cycle because once finished it starts again from the beginning forming a continuous wheel. However, due to its unpredictability this cannot be taken as a formal rule.

In the upward phases the economy improves and jobs are created, while in the downward phases the economy decreases. It is in the periods of contraction when economic crises break out. When oscillations of great intensity occur, economies can experience economic bubbles.

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Economic recession – Definition and Concept

A recession is a decrease in economic activity over a period of time. Officially, a recession is considered to exist when the GDP variation rate is negative for two consecutive quarters. It is also known as a period of economic contraction.

The economic recession is the phase of the economic cycle in which economic activity decreases, consumption and investment decrease, and unemployment increases.

In the following chart, we can see an example of a recession, with two-quarters of negative growth. If the negative growth continued, it would be a long economic recession. However, if the negative growth were to occur for only one quarter, we could not officially consider that decrease as an economic recession.

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Monetary Policy – Definition and Types

Monetary policy is the discipline of economic policy that controls monetary factors to ensure price stability and economic growth.

It brings together all the actions that the monetary authorities (central banks) have to adjust the money market. Through monetary policy, central banks direct the economy to achieve specific macroeconomic objectives. To do this they use a series of factors, such as the money supply or the cost of money (interest rates). Central banks use the amount of money as a variable to regulate the economy.

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Internacional Trade & Trade Balance of USA

US Trade Balance

General definition and importance

The “International Trade & Trade Balance” is an economic report that measures the difference between imports and exports of goods and services in countries like United States. Imports and exports are important components of accumulated economic activities. Furthermore, representing 14 and 12 percent of the gross domestic product in the United States, respectively. Normally, increases in exports are positive for corporate profits and also good for the stock market. Changes in the trade balance with particular countries may have implications in the monetary policy with respect to those countries for which this report is important for investors who are interested in diversifying their investments globally.

Main Economic Indicators for the Economy of Europe and the Euro (EUR)

Forex fundamental analysis

Euro fundamental indicators

The fundamental indicators shown below are of high importance for the euro, however, since the EMU (Economic and Monetary Union, the countries within the European Union which share a common market and a single currency, the euro) is composed of 17 countries, it is essential to be aware of major political and economic events of the member countries, such as changes in GDP, unemployment, and inflation. The major economies of the EMU are Germany, France, and Italy, for which, in addition to general economic data from the EMU, economic information from these three countries have the most relevance for the euro.

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