Forex Economic Indicators
The execution of fundamental analysis in the Forex market is done through the use of economic indicators. These indicators point to the state of some economical factors in the country whose currency you wish to trade with.
Economic indicators are published by various sections of the government and private companies. These statistics are analyzed by market investors to predict the direction of the Forex trading market. Forex economic indicators are published at fixed time intervals, and are followed by any serious online Forex trader.
Since so many people are tuned to use them, Forex economic indicators have a large impact on prices of currencies of the Forex trading market. Most traders do not use fundamental analysis because economic indicators seem difficult. This however is wrong because following simple guides can help you stay updated with the important Forex economic indicators easily.
Starting to use Forex economic indicators
To get started, you should first keep a log of all the important Forex economic indicators' release dates. Keep a log or make a subscription to one of the economic journals, so you'll know the most important factors of that time. If you are trading in JPY, the Forex economic indicators need to be relevant to the currency type, of course.
Each economic indicator tells you about a different aspect of the economy, and this should be translated in turn into the predicted movement of the currency price. Make sure you understand which aspect the indicator is about. For example, know that the GDP measures the growth of the economy while the PPI measures inflation. Don't worry, with some experience this will come naturally.
Different indicators have changing importance, according to the country's currency. Some currencies might have inflation indicators as key economic indicators while others will have employment rates as key indicators. This is also something you should find out and read about at various books and online guides.
There are leading economic indicators, which change before a particular Forex trend is set, and lagging indicators, that change after the economy had begun to follow a certain pattern. Both indicators should be used, depending on the currency's situation.
Major Forex Economic Indicators
- The Gross Domestic Product (GDP) - The sum of goods and services produced by domestic or foreign companies.
- Industrial Production - A measure of the production change, industrial capacity and resources of a country's factories, mines and utilities.
- Purchasing Managers Index (PMI) - A monthly index of a country's manufacturing conditions, including new orders, supplier delivery times, inventories, prices, employment, export orders, and import orders.
- Producer Price Index (PPI) - A measure of price changes in the manufacturing sector.
- Consumer Price Index (CPI) - A measure of the average price level paid by urban consumers for a fixed basket of goods and services.
- Employment Cost Index (ECI) - A measure of the number of jobs in more than 500 industries in all states and 255 metropolitan areas.
Tania Raven, Market Analyst