
As you must already know, the direction of Gold is mainly dependent on the Price action of DXY (US Dollar index). So first, we take a look at the US Dollar index.
2022-05-26 • Updated
Credit cycles (or leverage cycles) represent moments in the economy of a country when families and companies get indebted, in order to invest or to spend in different segments, which ends up positively influencing the level of the general economic activity, making the GDP grow. One of the ways to measure the leverage cycle of an economy is by dividing the volume of credit over the GDP. In Brazil we had a very significant leverage cycle between the years 2004-2014. On the Central Bank's website, we see that the level of credit (involving real estate credit, consumer credit, credit cards, vehicle financing, etc.) jumped from 25% in 2002 and 2003 to almost 54% in 2015. This great leverage cycle promoted the growth of the Brazilian economy in this period, becoming its main engine.
However, one of the main problems with credit-driven growth of GDP is that this type of growth tends to be unsustainable in the long run. For, when families and companies find themselves heavily indebted, they begin to deleverage, having to pay off the debts in which they have incurred and causing a cooling off in the economy's cycle of aggregate expansion and investment. After 2014, Brazil experienced a period of deleveraging by families and companies alike, in response to the expansionist cycle of the previous period, influencing the subsequent fall in Brazilian GDP.
As of 2016, we see a lower proportion of credit over GDP, indicating a lower willingness to get indebted on the part of the economic agents. At the same time, when consumption is contracted, entrepreneurs tend to invest less, since part of their installed production capacity starts to become idle. In 2020, we observed a countercyclical movement, substantiated by the increase in bank credit as a response to the COVID-19 pandemic. As a result, in December 2020, the volume of credit over GDP reached once more the level of 54%. Finally, how could all this be applied to the foreign exchange market? Simple, in expansion cycles, it becomes more profitable to invest in variable income, with a tendency for the national currency to appreciate against other pairs.
At FBS, clients can trade the pair USD/BRL through Cent and Standard accounts on both MT4 and MT5. For more information, see our trading instruments via the link: https://fbs.com/trading/specs/forex-standard
As you must already know, the direction of Gold is mainly dependent on the Price action of DXY (US Dollar index). So first, we take a look at the US Dollar index.
On January 12, the Bureau of Statistics will publish the Consumer Price Index (CPI) figures, a key index for determining interest rates. While we await the release, experts forecast a decline in the CPI data, a hint at weaker Dollar values in the global markets.
Later today Tiff Macklem, the governor of the BoC (Bank of Canada) is expected to speak at the Riksbank's International Symposium as part of a discussion panel on 'Central Bank Independence'.
Last year was tough for the Japanese yen. USDJPY gained more than 30% over 2022, striking above 150 in October. While anticipation of slower Fed rate hikes pulled the pair below the 130 level at the start of 2023, the speculations over the destiny of BOJ’s yield control policy grabbed the attention of the Japanese assets in the middle of January. What lies ahead for traders of the Japanese yen?
Today, at 5:00 pm (GMT +2), the Bank of Canada will publish the Overnight Rate, which represents short-term interest rates, and is pivotal to the overall pricing of the Canadian Dollar in the global markets. Let's look at how the markets are faring ahead of the BoC rates release.
In a call scheduled for January 25, 00:30 am GMT+2, Microsoft will publish the company's earnings for the final quarter of 2022 and comment on the results, projections, and outlook for the nearest future of the company.
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