Forex traders need to keep an eye on economic releases if they are to trade currencies successfully since the outcome can affect markets in a big way. Economic reports differ in impact, however, with some being more important than others.
Non-farm payrolls and the central bank announcements generally cause the biggest moves but the importance of news releases also differs depending on each currency pair. When trading the euro, these are the most important events to look out for:
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The ECB, like all central banks, meet once a month to decide on interest rates and discuss future prospects for the Eurozone economy. As you would expect, the monthly ECB meeting, headed by ECB Chief, Mario Draghi, is the most widely anticipated event on the euro traders calendar. Decisions by the ECB can have wide ranging implications for the future of the euro.
Traders sometimes refer to GDP (gross domestic product) as being a lagging indicator. Nevertheless, its release does bring significant volatility to the euro. A worse than expected number will likely lead to a drop in the euro since it shows a deteriorating economic picture and that increases the chance that the ECB will cut rates. If GDP is improves upon expectations, the euro will likely rise.
Eurozone balance of payments
The balance of payments is also closely watched by euro traders. A current account deficit for the Eurozone generally points to a depreciation in the euro while a current account surplus usually sees the euro rally. Traders will also look out for the German current account and French current account numbers, since these countries make up a big part of the Eurozone. Big surprises in the balance of payments can bring about some big moves in the euro.
German ZEW Survey
Euro traders watch the German ZEW Survey in order to monitor confidence and sentiment within Germany and the wider Eurozone area. By asking 350 financial experts what their views are on the economy, the ZEW can be used as a leading indicator into future price moves. Generally, the euro will advance upon a better than expected ZEW number.
Eurozone core CPI
Inflation figures are crucial for currency traders since central banks use them to decide on monetary policy. Since the ECB’s mandate is to keep a lid on inflation, a rise in Eurozone core CPI means the bank could potentially begin to raise interest rates and this would lead to a rise in the euro. Conversely, if inflation is below expectations, the ECB has more room to cut rates, which would quickly lead to a weaker euro. The ECB tries to keep inflation at around the 2% mark as anything higher than this can cause economic instability. Euro traders will also keep a close eye on German and French CPI, particularly German, since data from these two countries provides good insight into measuring the Eurozone as a whole.Get the 5 most predictable currency pairs