Global Economic Performance & Forex Market

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Global Economic Performance & Forex Market

Thank God forex trading is so international that every bit of a news around the world makes the currency pairs Move it Move it! So lets take a look at major economies that dropped (or are about to drop) the beat on the forex dance floor.

China’s Economy is Slowing

The big news this morning was the slowing Chinese economy.  During the Asian session, they released their GDP and industrial production. The former came in at 7.0%, slightly lower than last quarter’s 7.3% and the latter at 5.6% versus predicted 6.9%.

Comparing to EU and many other countries, you might say this ain’t so bad. But let me tell you: This is the SLOWEST pace China’s economy has expanded since 2009!

So what does this have to do with your forex account?

1- China is the world’s second largest economy, so honey, it matters.

2- Dismal business activity, consumer spending, trade and investment all painting a grim economic picture for China, therefore forex traders are on the watch for yet another potential global downturn

3- Us dollar and Japanese Yen could turn into safe haven again, because riskier assets and higher-yielding currencies might be in for a lot of pain if the safety switch is turned on

4- Mr. Aussie and Kiwi (New Zealand dollar) could also suffer because after all, China is their trading buddy!

 European Central Bank to Become Generous

Weak data from China raised anticipation that European Central Bank (ECB) will affirm their loose policy stance.

The ECB is almost certain to keep rates unchanged at record lows at its meeting later today, and could extend emergency aid for Greek banks.

Keep in mind that The ECB lifeline has been increased by another €800m to €74bn, of which €70bn is already used up. The cash is leaving the Greek banking system as fast as it is being pumped in, but the ECB’s ELA is the only choice the banks have, as the central bank refuses to accept Greek bonds as collateral against cash advances until such time as a deal is reached with creditors.

So all eyes will be on Super Mario (Mario Draghi) today as he is expected to have an overall dovish tone which could lead Mr. Euro to move down again, keeping 1.04 as support.

Tax Day in the USA

This is one thing that was the hardest for me to digest when I moved to the US. No one had ever told me about it until like 2 days before tax day. Talking about a foreigner-friendly environment!

While tax day probably won’t affect the currency pairs movements, it does affect your account and you need to make sure you have taken care of the profits your made in forex market, as they are as taxable as any other kind of profit you make in the US.  But what happens if (God forbid) you had more losses than gains in the past year? Let me break it down for you:

If you are an Over-the-Counter (OTC) trader (Spot forex):

You will be taxed according to IRC 988. That will give you protection over your losses, which means you can count all of your losses as “ordinary losses”  which is a great benefit.

If you are a forex options/ futures trader:

You are grouped in what are known as IRC 1256 contracts. These IRS-sanctioned contracts mean traders get a lower 60/40 tax consideration. What this means is 60% of gains or losses are counted as long-term capital gains/losses and the remaining 40% as short term.

1256 contracts, offer more savings for a trader with net gains – 12% more.

I can only hope that you didn’t forget to keep a detailed journal of your profits and losses for 2014!

Coming Up Later Today

Canada is about to release data and statements shortly so hold on to your CAD trades!

Manufacturing Sales at 1:30 PM GMT and BOC Rate Statement at 3 PM.

Kiwi traders should also be on the watch for New Zealand GDT Price Index which is gonna come out at some point later today (they didn’t give us an exact timing. It’s all about the surprise.)