How to Use the Forex Calendar as Part of Your Fundamental Analysis Trading Strategy
A forex calendar plays a vital role for forex traders using a trading strategy based on fundamental analysis. Whether the exchange rate of a particular currency appreciates or depreciates depends on the economic situation of the country. Hence, a close examination of the economic news coming from a particular country, as well as its trading partners, can give an indicator of the direction in which the exchange rate could move. Thus, an economic calendar is essential for helping you make your trading decisions. Should you enter or exit a trade? The data in this calendar can help you decide. And the economic calendar is updated in real time so that you can get the latest data as it is announced by the relevant government agency.
What are some of the data that is displayed in a forex calendar? Generally, they are economic macro indicators coming from the countries whose currencies are traded in the markets, which include the US, Canada, Japan, the UK, the Euro Zone nations and Japan. The most important data includes:
- The Consumer Price Index (CPI) is a measure of inflation
- Industrial Production measures the output of a country’s manufacturing sector as well as mines and utilities
- Trade Balance is a measure of the ratio between exports and imports (if it is negative, imports exceed exports)
- Jobless statistics such as the employment and unemployment rates as well as jobless claims
- Consumer Confidence Index, which is based on surveys and measures spending power, is based on consumer perceptions regarding the state of the economy.
Combining all these data can give the forex trader an overall picture of an economy whose currency he is trading so he can predict whether the exchange rate will appreciate or depreciate.
Apart from the economic data displayed in a forex calendar, one of the most important benefits you can get from referring to one is the impact column. This column displays the impact the data could have on the financial markets, which are usually classified into high, medium and low impact or volatility. For example, the Consumer Confidence Index figures and the CPI are generally considered high impact while the industrial production and jobless figures may be low impact. However, these ratings may change over time and are also dependent on the country from which the data comes.
When using a forex calendar it is important to look at the forecasted figures as well as the actual ones, since a preliminary forecast that a particular economic indicator will be negative and positive may be enough to affect the financial markets. And keep in mind that many times, preliminary data released is not final and is still subject to revision, which could result in figures that are substantially different from the original release. In addition, you should also anticipate when a particular economic indicator will be announced so that you can plan your trading decisions accordingly. Finally, be aware of what the market expectations are regarding a particular economic indicator and if they are met or not since this can also give you a signal as to whether or not to open or close a trade.
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