Economic Data Afecting the Forex
Part and parcel of fundamental analysis is the study of economic data. But even if you are not a market analyst and consider yourself just a trader, the fact is that you will not prosper in the FX market unless you pay attention to economic indicators.
The currency is a reflection of the state of a nation, hence the reason why economic figures have such an effect on the FX market. By keeping your eye on the economic data, you will not be caught unaware of any sudden shift in the currency prices.
First on the list of economic indicators is the Gross Domestic Product (GDP). This is the total market value of goods and services produced by workers and companies in a country. Obviously, the higher the GDP, the more robust the economy, and this translates positively for that country's currency in the forex.
Other reports keep to keep track of are retail sales. This will give the forex trader an idea of the consumer spending trend, whether it is on the rise or slowing down. A related subject is the Consumer Price Index (CPI). The CPI measures the price that consumers pay for specified merchandise and services. These two indicators gauge the spending habits and purchasing power of the consumer.
In the manufacturing sector, three data types should be monitored closely. The first is the Industrial Production report. Its main focus is on the production and capacity of factories, utilities and various other industries. The Institute for Supply Management (ISM), on the other hand, provides information on employment, backlogs, supplies, inventories, orders etc.
The third data index is the Producer Price Index (PPI). It is mainly concerned with any fluctuations in the prices received by those in the electric utility business, as well as those involved in agriculture and mining.
While these economic indicators can serve you in good stead in the forex, there are several other pertinent issues that you should be updated on.
One such issue is the price of gold. Often the decline of the U.S. dollar translates into higher gold prices, and vice versa. By keeping an eye on gold, you will know when to buy Australian or Canadian dollars. Because these countries produce gold, their currencies naturally benefit, making them an attractive buy. Other relevant subject matters are interest rates, inflation, unemployment figures etc.
Keep in mind that while there are numerous economic indicators, the data you should watch for are the ones pertinent to the currency you are holding. If unemployment figures are closely monitored in that currency's country, an adverse report will affect its performance in the FX market.
Knowledge is power, it is often said, and this is very true in the world of forex. By staying informed you will be always a step ahead of the rest, cashing in while others flounder.