Lesson 9 of 9 · 12 min
Course check: test yourself Flashcards for the fundamentals vocabulary, and ten questions across rates, inflation, jobs, growth, the calendar and market mood.
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You now know what moves currencies and how to read a release. Check it before moving on.
Flashcards
Fundamental-analysis terms
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Term Central bank Tap to reveal Definition The institution that sets a country's interest rates and manages its currency, such as the Federal Reserve (US), ECB (eurozone), Bank of England or Bank of Japan. Term Interest rate (policy rate) Tap to reveal Definition The rate a central bank sets for lending to banks. It shapes every other rate in the economy and is the strongest single driver of a currency. Term Hawkish / dovish Tap to reveal Definition Hawkish means leaning towards higher rates to fight inflation; dovish means leaning towards lower rates to support growth. Markets react to the lean, not just the decision. Term Inflation Tap to reveal Definition The rate at which prices rise. Central banks usually target about 2%. Inflation above target tends to bring rate rises; below target, rate cuts. Term CPI Tap to reveal Definition Consumer price index: the main measure of inflation, released monthly. One of the most market-moving data points because it steers interest-rate expectations. Term Non-farm payrolls (NFP) Tap to reveal Definition The monthly US jobs report, released on the first Friday of the month. Shows jobs added, the unemployment rate and wage growth. Frequently the most volatile release of the month. Term GDP Tap to reveal Definition Gross domestic product: the total value of everything an economy produces. Its growth rate is the broadest measure of economic health, but it is published late and revised often. Term Economic calendar Tap to reveal Definition A schedule of upcoming data releases and central-bank events, with the previous figure, the forecast, and an impact rating. Term Consensus (forecast) Tap to reveal Definition The average of economists' predictions for a data release. The market prices in the consensus beforehand, so the reaction depends on the surprise relative to it. Term Priced in Tap to reveal Definition Already reflected in the current price. A widely expected rate rise is priced in, so when it happens the currency may barely move, or even fall. Term Risk-on / risk-off Tap to reveal Definition The market's overall mood. Risk-on: investors buy higher-yielding assets and currencies. Risk-off: they sell them and buy safe havens. Term Safe haven Tap to reveal Definition An asset bought in times of fear because it is expected to hold its value: the US dollar, Japanese yen and Swiss franc among currencies. Term Carry trade Tap to reveal Definition Borrowing in a low-rate currency to buy a high-rate one and earn the difference. Profitable in calm markets; unwound violently in fearful ones. Term Commodity currency Tap to reveal Definition A currency whose country exports a lot of raw materials, so it tends to follow their prices: AUD, NZD and CAD in particular. Term Correlation Tap to reveal Definition How closely two pairs move together, from +1 (always together) to −1 (always opposite). Correlated positions add up to one bigger bet.
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Course quiz
Course quiz: 10 questions
Question 1 of 10
Which of the five drivers do most of the others act through?
A Interest-rate expectations B Trade balances C Stock-market performance
Next question Question 2 of 10
A central bank cuts rates. The direct chain is:
A Lower yields → capital leaves → currency sold → exchange rate falls B Lower yields → more exports → currency rises C Lower yields → inflation falls → currency rises
Next question Question 3 of 10
The ECB raises rates exactly as forecast and the euro falls. Most likely because:
A The hike was priced in and the statement was dovish B Rate rises always weaken the euro C Traders misread the decision
Next question Question 4 of 10
CPI prints at 2.6%. Last month was 3.0%; the forecast was 2.4%. Immediate reaction?
A Currency rises: the print beat the forecast B Currency falls: inflation came down C No reaction
Next question Question 5 of 10
Which NFP component can reverse the headline reaction?
A Average hourly earnings B The number of surveys conducted C The release time
Next question Question 6 of 10
Why does GDP usually move markets less than CPI?
A It arrives late and is mostly anticipated from monthly data B It is not watched by central banks C It is released on weekends
Next question Question 7 of 10
Country A is in late expansion and raising rates; country B is in slowdown and cutting. The pair A/B tends to:
A Trend upward B Trend downward C Range tightly
Next question Question 8 of 10
On the calendar, which column is the benchmark the actual is judged against?
A Forecast B Previous C Impact
Next question Question 9 of 10
In a risk-off move, the pair most likely to fall sharply is:
A AUD/JPY B USD/CHF C EUR/GBP
Next question Question 10 of 10
You hold long AUD/USD and consider adding long NZD/USD. The main risk is:
A You are placing nearly the same bet twice B The two trades will cancel each other C NZD/USD cannot be traded alongside AUD/USD
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Scored 8 or more: you are ready for Trading Psychology , the course about the trader rather than the market.
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Below 5: go through the course again with a real economic calendar open, and match each row to what you learned.
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