Regulators and many governmental agencies release important data revealing the state of the economy. Currencies move citing these data releases as deciding factor. As a beginner you should know at least following economic indicators. Sometimes they cause hundreds of pips of move. So you should know when they come out and is it wise to trade or just sit on the sideline.
The Impact of Employment
One of the important economic indicators you should keep your eyes on is non form payroll popularly known as NFP. US Department of Labor releases this data monthly on the first Friday. It gives the number of jobs added or lost during the last month. It is an indicator of the health of US economy. Increased jobs means better state of the economy and increased consumer confidence. It fuels the growth. When positive data is announced many times USD is seen rallying against all the currencies.
A Measure of Inflation
Consumer price index is also one of the closely watched economic indicators. It reports the change in value of goods and services and hence a good indicator of inflation. Rising CPI means the inflation is high and savings are reducing. In response to this inflation, central banks increase the interest rates. Decreasing CPI means deflation which can force central bankers to reduce the interest rates. A cue for interest rate policy can be taken from the CPI data. Hence it is closely followed by the forex community. A stronger CPI than expected increases the value of the currency and opposite happens if CPI disappoints the expectation. CPI for last month is released around 20th of next month.
The Strength of Economy
Gross domestic product is one of the important economic indicators to gauge the strength of the currency. GDP is nothing but the overall value of the goods and services produced by the economy over a period of time. GDP is referred by the policymakers to make important decisions. It is a critical data. A good GDP number implies increased production and more revenue. It strengthens the currency of the country. GDP data is released quarterly on the last Friday.
An Indicator of Trades
Of the economic indicators tracked, trade balance report is a vital data watched by traders around the world. Demand and supply determine the price of currency. Supply and demand of the currency depend on the trades happened with that country. If the goods and services produced in a country are popular in other countries then to facilitate the trade, the demand for the currency of that country will increase appreciating its value. The difference between export and import is revealed by trade balance report. If the data is positive then it is good for the currency. A negative data means currency is losing its value. US release the trade balance report every month.
The Strength of Manufacturing Sector
Purchasing managers index is one of the economic indicators which is of immense importance. It indicates how the manufacturing sector is doing. PMI gets its value from five different indexes namely new orders, inventory, production, supplies and employment environment. PMI is reported monthly on the first business day. PMI above 50 indicates the expanding economy and appreciates the value of the currency. PMI below 50 suggests that the economy is contracting which in turn reduces the strength of the currency.
Every player in the financial world gives strong attention to economic indicators. The volatility these indicators produce is a good opportunity for traders to catch. They are very easy to understand and follow. With practice you can trade in such time and handle the volatility to your advantage successfully.
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