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Basics of binary options

Basics of binary options

The US dollar (USD) continues to hold the title of the main settlement currency of the world economy, despite the euro and the constantly increasing of the Chinese Yuan influence, especially in the South Asian region. Any changes in the state of the economy, foreign and domestic policy of the United States lead to strong movements in the Forex market. Everyone who thinks how to make money on binary option needs to understand what affects the dollar exchange rate.

External factors

If you do not take into account the trade wars with China and other economic problems that the new President of the United States will have to solve, all external factors affecting the dollar exchange rate are in one way or another related to oil prices. The image shows the price graph of WTI (West Texas Intermediate, Light Sweet) - oil produced in Texas with low sulfur content.

Most of the production is used inside the United States, and is also exported via pipelines to Latin America for further processing. It occupies a little more than 1% of global production, its sales affect the economy less than in countries where oil production is the main source of income, but it is necessary to take it into account when analyzing what affects the dollar exchange rate.

The decline in the cost of shale oil production by almost 5 times since the start of field development in 2012 yr. has led to the fact that this component of US exports will have an increasing impact on USD and binary options strategy.

There is also an active construction of new terminals on the coast of the Gulf of Mexico to send oil to the international market. Successful implementation of the project will allow US to get rid of the status of a regional exporter, and WTI quotes will play an increasingly important role in determining world energy prices.

Internal factors

The first thing that influences the dollar rate will be the speeches by the head of FedReserve on the main issues of current and future financial and credit policy. The currency and stock markets are extremely unstable at these moments. The topic and the general mood of the speeches are kept secret, and it is difficult to predict where the market will go based on free binary option signals. Moving on economic news and statistics:

FED Interest Rate Decision

The interest rate is one of the most important tools for managing the banking system. The decision to change or maintain the interest rate is made by the FedReserve Financial Policy Committee. The rate hike has a very negative impact on the dollar.

Forex: the change in exchange rate of almost all currency assets after the news is published is at least 70-100 points, for EUR/USD pair it can reach 200-300 points. The Canadian dollar is an exception – it shows a calm reaction, the maximum for USD/CAD is no more than 40-50 points.

FOMC Meeting Minutes

The final report of the FedReserve finance committee meeting, in which the current interest rate can be adjusted if new or additional important factors have emerged or not been taken into account since the previous factors, usually does not happen.

Forex: the possible reaction to live trading signals is as strong as the first publication of the interest rate. And in this case, USD/CAD exchange rate does not show significant changes.

Gross Domestic Product (GDP)

An index showing change in total volume of goods/services produced for export and for domestic consumption in relation to previous settlement period. The preliminary data are published first, mainly affecting the USD within the current trading day, then it is corrected twice and the trend for the next 1-2 weeks becomes clear. The national currency always strengthens on the growth of GDP and, accordingly, becomes weaker when it decreases.

Important for binary options strategy on Forex: the maximum reaction is 150-250 points for the main pairs, on average, the quote changes in the following ranges:

EUR/USD, GBP/USD: 60 points;
NZD/USD, AUD/USD, USD/CHF: 40-50 points;
USD/CAD, USD/JPY: up to 40 points.

Trade Balance

The difference between the volume of exports and imports of goods for the reporting period. The balance is positive (active) if exports exceed imports, strengthening the dollar. With a negative (passive) balance, the rate begins to decline. The data is released monthly in the third decade (most often on Thursday).

Forex: strong impact only on the Euro and the Pound: an average of 50 points for GBP/USD, up to 200 for EUR/USD, if the data differs significantly from the forecast. For the rest of the assets, there is a weak movement of 30-40 points.

Non-Farm Payrolls (NFP)

The main indicator of the level of employment in US. Among analysts, there is an opinion that every increase in the number of employed people by 200 thousand causes GDP growth by 3.0%. Published on the first Friday of the current month, translations are possible in connection with holidays and other significant events.

Important for auto binary signals: Of all the news and statistics on USD, it has the strongest effect on the foreign exchange market. It can lead not only to short-term impulses of 150-200 points for all pairs, but also to the formation of new medium-term trends. Although it can often be seen that even such strong events have a short-term impact, in 4-6 hours the price returns to initial levels.

Initial Jobless Claims (Unemployment Rate)

They come out simultaneously with the NFP: the initial shows how many percent of the unemployed are to the total number of employed, applications, their weekly change over the past month. Used to analyze the job market in agricultural sector. Also, based on the dynamics of changes in the number of applications, you can try to predict the next NFP, which means the USD rate: if Jobless Claims consistently decreases, it can be assumed that the NFP will be higher than the forecasts and opposite.

Forex: these factors are classified as «weak» for real binary options signals: for the Euro and Pound 20-30 points, there is almost no reaction to USD/CAD, AUD/USD and NZD/USD.

Consumer confidence

Regular survey of current and future preferences of 5,000 US families, published every month after the 20th. It is used as one of the parameters for predicting the employment situation and the general economic condition. Growth has a positive effect on the dollar.

Forex: the index, like all completely domestic economic factors of the USA, does not give a strong reaction on the main currency pairs, a maximum of 30-40 points in any direction. When the market is speculative with high volatility, impulses of 130–150 points are possible, it is recommended to skip free binary options signals. Then, within a few hours, the price usually returns to the original levels.

ISM Manufacturing / Non-Manufacturing PMI

The indices are calculated based on the results of surveys of managers of 4,000 companies in the relevant sectors, assessing the change in the market situation according to the criteria of "better/worse/no change". In the production sector, inventory levels, employment, delivery times, and export/import prices are additionally evaluated.

It is believed that the impact on the dollar rate of values greater than 50% will be positive, since this indicates an increase in business activity, less than 50% of an increase in the negative impact on the USD. They are published on the first working day of every month.

Forex: +50%/-50% range does not have much impact on major currency pairs. Strong movements begin at 60% and above when there is talk about «overheating» of the sector, rising inflation with subsequent revision of the FedReverse rate and 40%, which indicates possible market recession. In these cases, sharp movements up to 150-200 points are possible; the exact binary option strategy should take this into account.

The dollar index - indicator its stability

In the previous section, we considered the impact of the situation in the United States on the USD rate and the Forex market in general, but, as in any other natural process, there is a force of resistance. To assess how the dollar looks in relation to other currencies, a special index was developed.

The index (DXY, USDX) is a multi-currency basket for a quick assessment of its strength or weakness. Each currency in the basket has a different weight. According to the authors of this instrument, the European region, where the main trading partners were located at that time, has a greater impact on the dollar. Of the other major currency pairs, only the Japanese yen and the Canadian dollar.

Despite the fact that the influence of the Asia-Pacific region (Australia, Taiwan, South Korea, China) is almost not taken into account, the index can be used as an element of a complex binary options strategy, although it can give distorted information when the Euro goes into a period of high volatility.

Among analysts, there is an opinion - when the USDX rate increases by 10%, it means a drop in the total value of world wealth by $1 trillion.
For a more accurate assessment of the state of the dollar, it is better to use one of the FED instruments: Trade-Weighted Dollar Index (TWDI). It contains currencies that are not included in the basic USDX calculation so that the impact of sharp changes in the situation in the Eurozone on the USD is less significant.

When analyzing the movement of the index, always remembers - this is a macroeconomic indicator, therefore, acceptable forecasts of how the dollar will behave are possible only on daily, weekly and monthly timeframes. The strongest signal of a change in the global trend will be the divergence movement of the USDX charts and EUR/USD pair.

The listed factors influencing the dollar rate are not the final list of why signals for binary option on currency pairs with USD. These are mainly economic indicators, but you also need to take into account stock exchange and speculative aspects, such as the relationship between the stock and foreign exchange markets. It is a well-known fact that the change in the value of currency futures (in this version, the dollar index is also traded) may have a delayed effect on Forex, such leading signals can be successfully used in trading.

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