One of the most important types of information available to a forex trader comes in the form of economic news or data releases. Such key news items concerning the economic health of a country will have a tendency to directly affect the value of that nation’s currency relative to the currencies of other nations.
As a result, they are key pieces of any trader’s fundamental analysis process. Also, from a technical trader’s point of view, since such economic data releases can often move the market substantially, it makes sense to keep a close eye on what data is coming out and when.
Key Economic Numbers
Several of the more important economic numbers which may have an impact on the value of a country’s currency include.
- Trade Balance – a measure of the amount of imports versus exports of a country.
- Gross Domestic Product – a measure of the total value of goods and services produced in a country.
- Consumer Price Index – a measure of inflation calculated by the change in the price of a basket of goods.
- Retail Sales – a measure of all goods sold in retail outlets which indicate the amount of spending in the economy.
In addition to the key fundamental indicators listed above, a government’s employment report, as well as level and anticipated future direction of the country’s interest rates, will often significantly affect the value of a country’s currency.
Using Economic Calendars
Many forex traders keep an economic calendar close at hand that contains the times and dates of the aforementioned major economic data releases for the currencies that they are interested in trading.
This calendar should also list details of other important events like G7 Summits and government budget announcements, as well as key policymaker speeches and testimony given during government finance hearings.
Of course, since currencies trade in pairs, in order to keep on top of the economic news for the EUR/USD pair, for example, you would need to watch economic calendars for both the Eurozone, as well as the United States.
Forex Fundamentals are Relative
Since currencies only trade in pairs in the forex market, their values are generally expressed relative to that of another currency. The same relationship tends to holds true with respect to evaluating the economic news relevant to each currency.
Furthermore, in the most actively traded currency pairs, the U.S. Dollar usually takes the role of being the primary standard against which the values of other currencies are measured for historical reasons.
As a result, when reviewing the economic data that has already been released as part of your fundamental analysis process, you will need to take into account the overall economic picture in both of the nations involved in the currency pair you are interested in trading.
You can then weigh the key fundamental factors for one currency country against the data observed for the other currency’s country to obtain your fundamental forecast for the pair.
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