Forex Economic Indicators
Economic indicators affect Forex Markets
Economic indicators are snippets of financial and economic data published by different agencies government or private sector. These statistics, which are made public at a regularly scheduled basis, help market observers monitor the pulse of the economy. Therefore, they are religiously followed by almost everyone in the financial sector markets.
With so many people prepared to react to the same information, indicators economic, in general, have enormous potential for volume and prices move in the markets. While on the surface it might seem that an advanced degree in economics would be very useful to analyze and then trade on the glut of information contained in these economic indicators, a few simple guidelines are all what is necessary to track, organize and make business decisions based on the data.
Know exactly when each economic indicator is due to be released free. Keep a calendar on your desk or trading station that contains the date and time of each statistic was made public. You can find these calendars the Federal Reserve Bank of New York Web and then by searching for "economic indicators." The same information is also available in many other sources on the Web or the company that used to run their operations.
Keep track of the calendar of economic indicators will also help to make sense of the price action not otherwise anticipated in the market. Consider this scenario: It's Monday morning and the dollar has been plummeting for three weeks. As such, it is safe to assume that many traders are holding large short USD positions.
However, Friday's employment data U.S. is due to be released. It is very likely that this key piece of economic information will be published soon, the dollar could experience a rally short-term lead to data on Friday as traders reduce their short positions. The point here is that economic indicators can directly affect prices (after their release to the public) or indirectly (as traders massage their positions waiting for the data.)
Understand what particular aspects of the economy is revealed in the data. For example, you should know that the indicators measure the growth of the economy (GDP) versus those that measure inflation (PPI, CPI) or employment (nonfarm payrolls). After following the data for a while, it will become very familiar with the nuances of each indicator economic and how much of the economy they are measuring.
Not all economic indicators are created equal. Well, it could have been created with equal importance but along the way, some have acquired much greater potential to move markets than others. Market participants higher position in regard statistics over another depending on the state of the economy.
Know that the markets are key indicators. For example, if prices (inflation) are not a crucial issue for a particular country, inflation data will probably not be as keenly anticipated or answered by the markets. On the other hand, if economic growth is a vexing problem, changes in employment data or GDP is expected and could precipitate tremendous volatility following their release.
The data itself is not as important as whether or not it falls within market expectations. In addition to knowing all the facts when it hit the cables, it is vitally important that you know what economists and other market experts are forecasting for each indicator.
For example, knowing the economic consequences of an unexpected monthly increase of 0.3% in the producer price index (PPI) is not as vital to their short-term trading decisions as it is know that this month the market was looking for PPI to fall 0.1%. As mentioned, you should know that PPI measures prices and an unexpected rise could be a sign of inflation.
But the analysis of long-term consequences of this unexpected monthly increase in prices can be expected until after commercial advantage of the opportunities presented by the data. A Once again, market expectations for all economic reports are published in various sources on the Web and you should post these expectations on your calendar with the date of release the indicator.
Do not get caught in the headlines. Part of getting a handle on what the market is the forecast of economic indicators is knowing the key aspects of each indicator. While your macroeconomics professor might have drilled the importance of the unemployment rate in the head, I can even junior traders say that the headline figure is for amateurs and that the details observed in the payroll data is the number of nonfarm payrolls.
Other indicators economic returns are similar in that the headline figure is not as closely followed as the finer points of data. PPI for example, measures changes in producer prices. But the statistic closely watched by the markets is PPI, ex-food and energy. Retailers know that food and energy component of data is too volatile and subject to review on a monthly basis to provide an accurate reading of changes in producer prices.
Speaking of revisions, do not rush to tighten the trigger event of a particular economic indicator fall outside of market expectations. Contained in each new economic indicator released to the public are revisions previously published data.
For example, if durable goods should increase by 0.5% in the month, while the market is anticipating a fall, what unexpected rise could be the result of a downward revision to the previous month. See reviews of older data because in this case, the figure durable previous month assets that could have been reported as an increase of 0.5%, but now, with new figures being revised down to say growth only 0.1%
Therefore, the unexpected rise in the current month is likely the result of a downward revision to the previous month's data.
No Remember that there are two sides to a trade in the Forex Market. So while you may have a big handle on the full range of economic indicators published in the U.S. or Europe, most countries also publish similar economic data.
The important thing to remember here is that not all countries are so efficient as the G7 in releasing this information. Again, if you will change the currency of a country, it is necessary to find data on indicators economic. As mentioned earlier, not all indicators have the same weight in the markets and not all are as accurate as others.
Do its task and will remain vigilant.
About the Author
Martin Chandra
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