If you are just getting into trading in the currency markets, you need to know how to read a forex calendar. This calendar is one of the essential tools that every trader in the financial markets needs to use in order to make their trading decisions. Virtually every forex broker hosts one of these calendars on their sites for the use of their clients and other currency traders. Here is how to read an economic calendar.
The forex calendar resembles a table with multiple columns. The major information found on this calendar is as follows:
- The time that the data will be officially released. This data allows you to time your trading decisions based when it will be released. It should also be noted that the economic calendar is generally updated in real time so that you can see the new data appear virtually as soon as it becomes available.
- The actual data. This column features the official figures that have been released.
- Data from a previous period. This allows you to make comparisons to see if the indicator has improved or worsened.
- Consensus. These are forecasted figures that give you an idea of the market consensus regarding the indicator.
- Volatility. These are ratings given by the people who compiled the calendar regarding the indicator’s effect on the markets. Generally, economic data are classified into high, medium and low volatility based on how they believe the data would affect currency prices.
If you are trading currency pairs with dollars, here are some of the most important indicators you can find in the forex calendar that can affect the exchange rate.
- Gross Domestic Product (GDP). This is an indicator of economic health that measures the actual amount of economic activity in the domestic economy based on output. When the growth rate of the GDP is high, it is a signal to open a position and buy dollars. On the other hand, you should sell if the GDP growth rate weakens.
- Unemployment Rate. This shows the number of people who are out of work and looking for a job during the survey period and is a measure of the health of the economy. When the unemployment rate falls, it is a strong ‘buy’ signal.
- Producer Price Index (PPI). This is a measure of the average prices of some 3,500 products from various economic sectors such as manufacturing, mining and agriculture.
- Consumer Price Index (CPI). This shows the average change in the prices of a specially-chosen basket of goods and services that people use in their everyday lives. Inflation is an important economic indicator that forex traders watch closely since it could lead to an increase in interest rates, which makes exchange rates appreciate.
- Balance of Trade. This measures the ratio of exports vs. imports. When the trade balance is positive, exports are higher than imports, this makes the dollar stronger and the exchange rate appreciate.
- Housing starts. This measures the number of new houses being constructed during a particular period. It is an important economic indicator in the forex calendar because the housing sector is one of the leaders of economic growth. If housing starts decline, it is an indicator that the economy is weakening.