There are a lot of economic indicators and forex news events that influence currency markets, and new traders need to learn about them. If new traders can quickly learn which data to watch out for, what it means, and how to trade it, they will soon become more profitable and set themselves up for long-term success.
Here are the four most important News Releases/Economic Indicators you should know now so you’re always up-to-date! Technical charts can be extremely profitable, but you must always consider the fundamental story that drives the markets.
The central banks of various economies meet monthly to decide on interest rates. As a result of this decision, traders are extremely concerned about the economy’s currency, and as such, their decision affects the currency. They can choose between leaving rates unchanged, raising, or lowering rates.
The currency appears bullish if rates are increased (meaning it will increase in value) and are generally viewed as being bearish if rates are reduced (meaning it will decrease in value). However, the perception of the economy at the time can determine whether an unchanged decision is bullish or bearish.
However, the accompanying policy statement is as important as the actual decision since it provides an overview of the economy and how the Central Bank views the future. Our Forex Mastercourse explains how we implement QE, which is a vital matter concerning monetary policy.
Traders can benefit from rate decisions; for instance, since the ECB cut the EuroZone rate from 0.5% to 0.05% in September 2014, EURUSD has fallen by over 2000 points.
As measured by GDP, the Gross Domestic Product is one of the most important indicators of a country’s economic health. The central bank determines how fast a country’s economy should grow yearly based on its forecast.
It is, therefore, believed that when GDP is below market expectations, currencies tend to fall. Conversely, when GDP exceeds market expectations, currencies tend to rise. Thus, currency traders pay close attention to its release and can use it to anticipate what the Central Bank will do.
After Japan’s GDP shrank by 1.6% in November 2014, traders anticipated further interventions from the Central Bank, causing the JPY to fall sharply against the Dollar.
One of the most widely used economic indicators is the Consumer Price Index. This index measures how much consumers have paid for a basket of market goods in the past and shows whether the same goods are becoming more or less expensive.
When inflation rises beyond a certain target, interest rate rises help to counteract it. According to this release, central banks monitor this release to help guide their policy decision-making.
According to CPI data released in November 2014, the Canadian Dollar traded up to a six-year high against the Japanese Yen, beating market expectations of 2.2%.
Due to its importance as an indicator of a country’s economic health to Central Banks, unemployment rates are crucial to markets. Because Central Banks aim to balance inflation with growth, higher employment leads to rises in interest rates, which attracts enormous market attention.
The US ADP and NFP figures are the most important labour statistics released monthly, following the Unemployment Rate. To help you trade it, we do an annual NFP preview, giving you our analysis and tips on the release. In the current market environment, investors focus on the expected date of a Fed rate hike, making this figure more important each month. NFP predictions rely on the ADP data, which comes out before the NFP release.
Economic indicators and news releases are important to understand how the market anticipates and reacts to them, which creates trading opportunities for traders. The volatility and uncertainty can be overwhelming for new traders seeking to trade news events, making it extremely difficult. However, we have a fantastic suite of indicators ideal for trading news events.