FX.co ★ Key events on January 4: fundamental analysis for beginners

Analysis of macroeconomic reports:

There's a full plate of macroeconomic events slated for Thursday, starting with less significant ones. During the day, December data on the index of business activity in the services sector will be published in Germany, the UK, the EU, and the US. These are relatively minor data that may only provoke a market reaction in the case of a significant deviation of the actual value from the forecast. However, such occurrences are extremely rare, so we do not expect any significant market response.

Germany will release an inflation report for December, and this might provide fresh impetus. Inflation could rise to 3.7%, which theoretically could support the euro, as it would imply the premature discussion of a European Central Bank rate cut.

From the US docket, the ADP private payrolls report and weekly jobless claims on Thursday will shed some more light on the labor market. These data can also elicit reactions from traders only if the actual values significantly deviate from the forecasts. We would say that the most important reports for Thursday are the ADP and the inflation reports in Germany.

Analysis of fundamental events:

Thursday sees no fundamental events. Of course, this doesn't mean that central bank officials from the European Central Bank, Bank of England, or the Federal Reserve will not give interviews during the day. However, the market doesn't have much questions about their policies at the moment. Just two weeks ago, central bank meetings were held, and after those it became clear which direction they are looking at in terms of monetary policy.

General conclusion:

Several economic reports are scheduled for release on Thursday, but only few of them are considered important. We believe that you should focus on the US ADP report and the inflation report in Germany. It's quite possible that the dollar may stop rising on Thursday, although in the case of the British pound, its strength remains relatively subdued at the moment.

Basic rules of a trading system:

1) Signal strength is determined by the time taken for its formation (either a bounce or level breach). A shorter formation time indicates a stronger signal.

2) If two or more trades around a certain level are initiated based on false signals, subsequent signals from that level should be disregarded.

3) In a flat market, any currency pair can produce multiple false signals or none at all. In any case, the flat trend is not the best condition for trading.

4) Trading activities are confined between the onset of the European session and mid-way through the U.S. session, post which all open trades should be manually closed.

5) On the 30-minute timeframe, trades based on MACD signals are only advisable amidst substantial volatility and an established trend, confirmed either by a trend line or trend channel.

6) If two levels lie closely together (ranging from 5 to 15 pips apart), they should be considered as a support or resistance zone.

How to read charts:

Support and Resistance price levels can serve as targets when buying or selling. You can place Take Profit levels near them.

Red lines represent channels or trend lines, depicting the current market trend and indicating the preferable trading direction.

The MACD(14,22,3) indicator, encompassing both the histogram and signal line, acts as an auxiliary tool and can also be used as a signal source.

Significant speeches and reports (always noted in the news calendar) can profoundly influence the price dynamics. Hence, trading during their release calls for heightened caution. It may be reasonable to exit the market to prevent abrupt price reversals against the prevailing trend.

Beginners should always remember that not every trade will yield profit. Establishing a clear strategy coupled with sound money management is the cornerstone of sustained trading success.