For traders who are fundamental analysis user , it is necessary to understand about what and how economic indicators influence forex trading. When I started taking up forex trading, I tend to depend on my own knowledge about it because of my background in Economics. New traders tend to rely on macroeconomic books as their references. Before opening position, they are busy analyzing and comparing the news with references, in order to determine the impact of each news on exchange rate.
Economic indicators are datas released by the government or private organizations which can be used to see the economical performance of a certain country. After the releases, there will be either a positive sentiment optimistic or a negative one pessimistic to the policy or economical condition of the country. This sentiment influence market player decisions, and afterward will affect the exchange rate of that country. As a trader we should understand how to asses thesem so that later we can draw a conclusion on their influences to the pairs we trade.
These are some of the indicators that have relatively big influences to the forex trading: The first is, the number of unemployment. When unemployment rises, it shows poor political power and bad economic condition. Therefore, rises in unemployment tends to decrease the exchange rate of a country's currency. GDP is considered as the most common indicator to assess the economic condition of a country. Products Domestic Bruto is the total market value of all goods and services produced by a whole country.
GDP usually measured on quarterly period, instead of monthly or weekly because a longer period is better in depicting the statistics of all products and services. Consequently, this indicator is not used alone in forex trading. GDP is considered as a lagging indicator, it's a measured factor and its influence depends on its trend over time. Retail Selling Report is the third factor often used in forex trading. This indicator shows the total receipt of all retail stores in a country.
This indicator is a reliable and important economic indicator in developed countries due to the spending pattern of consumers which are mapped all year. This factor is usually more important than lagging indicator and gives clearer description about the economic condition of a country. This report shows fluctuation in industrial productivity, such as in manufacturing. This report shows actual production in relationship with its potentials in a period of time. The Industrial Production report more or less will influence a country's import and export activities.
Report on export, or trade balance , is the fifth indicator. A country's export is important to be observed, because it influences their trade balance. A minus trade balance, also known as trade deficit, means that a country imports more products than it exports, and consequently, owe more to foreign countries.
This is why market players usually react negatively to increased trade deficit. Consumer Price Index CPI , or inflation, is the last but not least economic indicator in analyzing forex.
CPI is a measurement of the changes in the consumer's goods price in categories. If it rises and with it comes rumours of upcoming increase of interest rate, then the currency's exchange rate most probably will rise too. Reports on those indicators are released periodically for every country.
There are yearly, quarterly, monthly, and even weekly releases. It is beneficial for every traders to be prepared beforehand by observing fundamental calendar. Many traders are able to take profits from rapid price movement before and after the news released. If you are as slick as them, you could too.More...