Fundamentals that every new forex trader should be aware of
Maintaining an economic report calendar is crucial to staying current in this ultra-fast market.
In the Forex market, fundamental analysis helps traders to evaluate currencies and their countries. And the use of economic announcements helps in gaining an idea of the currency's true value.
All of political events, economic data and news reports that come out about a country are helpful for traders. Every change in this data, due to many possible factors, has effects on the currency market.
The fact that trading Forex market has become a huge global activity means that macroeconomic events play even greater role in markets than ever before. Economic reports are the best companions in the market. Maintaining an economic report calendar is crucial to staying current in this ultra-fast market.
Below are some of the releases that those traders who are new in the market should be aware of.
GDP (Gross Domestic Product). This is the most popular report because it is a measure of all goods and services produced inside a country's borders. As such, it doesn't include imports, even though imports can add to job creation and prosperity in an economy.
GDP data is loudly discussed by all the major media outlets, and trader needs little effort in finding and evaluating the report. There is no need to go into the details of its calculation here, but we should briefly discuss its implications on the markets, and what a good or bad GDP number means.
A positive, rising GDP number is a sign that the economy is growing. A positive, but lower GDP value (in comparison to the previous quarter), is a sign that GDP growth is decelerating. Finally, a negative GDP value over two consecutive quarters is usually considered a recession by economists: a period of falling demand, production, and economic activities which cause panic and great concern in financial markets in general.
Interest rate. Traditionally, if a country raises its interest rates, its currency will strengthen because investors will shift their assets to that country to gain higher returns.
Inflation. This is also a very important indicator as it sends a signal to traders that, if it is increasing, then the purchasing power of the currency is falling. Also, it can be a “double-watching”, as it can be a pressure on currency appreciation which may force central banks to increase interest rates in order to curb rising inflation levels.
Employment situation. Decreases in the payroll employment are considered as signs of a weak economic activity that could eventually lead to lower interest rates, which has negative impact on the currency.
Other releases such as retail sales, manufacturing indexes and capacity utilization are also very important information on the current and forecasted strength of an economy and its currency, and they have effect on global foreign exchange market.
The economic report for a country is the most important determinant of its currency's value. So knowing all those factors and indicators to watch will help you keep pace in the competitive and fast-moving world of foreign exchange market.
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