Basics of Forex Economic Indicators



This tutorial highlights some of the Forex economic indicators that will be able to guide the trader’s path in understanding financial and economic data.

Some indicators are very important for certain markets, e.g. Non-farm payroll releases in the US, and others may not be as important.

Guest post by Alexander Collins

Financial Data that Affects Currencies

Economic indicators are signals that provide guidance to the underlying data. This information is critical for traders to make buy and sell decisions. Financial economic indicators also describe the condition of the country’s economy and its impact on currencies.

Various governments and private financial organizations release economic data from time to time. This is part of public policy to keep everyone informed of changes to the country’s economy. These releases adhere to set schedules and traders keep watch for these pieces of data to make decisions.

The release of important indicators often results in increased trading volume and activity that in turn affects currency markets. Analysts will provide reams of information related to these indicators but traders do not need to have great theoretic knowledge to judge their importance.

Schedules of Indicators

Since the release dates and times of economic indicators are known in advance, traders generally track them closely. There are many online and offline media that will have this data instantly updated. Many trading software can automatically alert traders to the new data coming out. Also, many online brokers and dealers highlight them on their websites instantly.

Forex economic indicators represent several underlying economic data such as a country’s Gross Domestic Product (GDP), employment statistics such as non-farm payrolls, and other vital information such as Consumer Price Index that is an indicator of inflation in the country. Every indicator is useful in gauging the country’s economic pulse and how it will impact its currency in relation to others.

Traders can be overwhelmed by the barrage of economic data that is continuously being released by all the countries in the world. It is important to learn which of the economic indicators are critical important and which can be ignored. Some of the closely followed indicators that have a known effect on markets are the Non Farm Payroll data from the US, GDP figures and Central Banks’ Interest Rate changes.

Analyzing

Economic indicators dealing with inflation data such as CPI are important when related to certain countries but not to others. As the US dollar is a key driver in the Forex markets, any indicator that relates to the US or its Federal Reserve is watched alertly by traders. And known as the market movers in a big way, so it is good to anticipate them.

Forex economic indicators are universally available to traders but each trader may judge them in their own special way. There is always more than one opinion to analyze any of them. If traders feel positively about it, they will buy the underlying currency, or else sell it. This leads to major volatility in the market since traders want to make most of the opportunity generated by the release of an economic indicator.

Anticipating

Many of indicators are anticipated by market analysts and financial gurus. They try to predict these numbers based on their study of the economy. Many traders follow these predictions. When a released is quite different from the anticipated figure then it can cause quite a bit of volatility. Traders try to come to grips with the changed situation and assess their own exposure to the Forex market.

Example

For example, let’s say the prediction was that Non-Farm Payrolls would register a net gain of 10,000 jobs. Traders tend to position themselves in the market for this outcome. However, if the actual data came out as net loss of 25,000 jobs, there would be a wave of shock in the trading community. Such unexpected releases are common. Traders who were exposed to the market would immediately wish to liquidate their positions. This causes a run on the short side for the US dollar, with the exchange rate literally falling to the floor rapidly.

Some of the surprises in Forex economic indicators are related to revisions in data posted earlier. Governments and other organizations frequently revise older data based on any new information they receive. This impacts the current economic indicators, so traders are advised to look at these older revisions to understand the causes for the unexpected changes.

Economic indicators are a very big help for traders to develop their trading strategies. Traders must be aware of the schedule of the releases of financial data as these will have an effect on their already open positions. Traders have to follow Forex economic indicators especially for the countries whose currencies they regularly trade to gauge the outlooks of their respective economies.

This guest post is submitted by Alexander Collins, a forex software developer and trader. To compliment your reading, he offers to download free tools for MT4 at http://pipburner.com/free-forex-trading-tools/. For example, you will find there FX Pulse – trend detecting and news reading indicator.


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