Forex Tips: Current Account Index and the Forex Market

The current account index is one of the most famous and useful international macroeconomic indicators used by forex traders in their daily activities. Specifically, the index measures the difference in value between goods, services and interest payments exported and imported during the abalysed month. A country always trades goods and services with other countries, exports and imports, and the current account index measures the size of this trade. The goods part is the same as the monthly trade balance figure. Since foreign buyers must purchase a domestic currency in order to pay for their exports to the exporting country, the current account indicator is a proxy for the demand for money for commercial reasons and therefore has a considerable impact on the domestic currency and its exchange rates. For example, the performance of the eurozone current account index, published by Eurostat, has a strong impact on the euro and its main crosses, starting with the euro dollar.

A forex trader should use the following rule of thumb when trading based on the analysis of this index: a better-than-expected current account reading of a country (i.e. measuring higher-than-expected exports or lower-than-expected imports, or both) is generally favorable (bullish) for the domestic currency, while a weaker-than-expected reading of the forecasts is generally negative (bearish) for the domestic currency. For example, a better-than-expected Eurozone index reading is generally favorable (bullish) for the Euro with respect to its main peers, while a weaker-than-expected reading is generally negative (bearish) for the euro.

Related Articles

Crypto carry trade (part one)
The current international monetary environment is characterized by ultra-expansionary monetary policies undertaken by…

Read more >
Passive and Aggressive orders
In forex trading, traders often use passive and aggressive orders in their daily…

Read more >
The Rate-of-Change (ROC)
In the technical analysis of forex markets, the Rate-of-Change (ROC) is a momentum…

Read more >