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. They are capable of bringing huge moves within few minutes. It is best to know the dates of their announcement.
The Impact of Employment
One of the important economic indicators you should keep your eyes on is non form payroll popularly known as NFP. This data comes out of America on first Friday of every month. NFP gives a change in the jobs during the last month. It indicates how the US economy is doing. 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.
An Indicator 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. Constantly increasing CPI indicates that the living has become costly which effectively means lesser savings. Central banks rise interest rates to curb the inflation. 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. Positive CPI is good for the currency while negative data is considered to be depreciative. The data for last month is announced on the 20th of current 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. Hence it is an important indicator. 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. The trades of that country with others determine the demand of the currency of that particular currency. If the goods produced by that country are popular in other countries then it strengths the currency. Trade balance report reveals the net of export and import. If the data is positive then it is good for the currency. A negative data means currency is losing its value. US release trade balance report monthly.
Purchasing managers index is one of the economic indicators which is followed widely. This data reveals the strength of the manufacturing sector. This data is calculated by using five different figures which are new orders, inventory, production, supplies and employment environment. PMI is reported monthly on the first business day. A PMI index above 50 is considered expansion of the economy and hence considered good for the economy and the currency of that currency. PMI below 50 suggests that the economy is contracting which in turn reduces the strength of the currency.
Economic indicators are judiciously followed by everyone in the financial community. They move the markets considerably and hence provide excellent trading opportunities. You don’t need advanced degree to understand them. With practice you can trade in such time and handle the volatility to your advantage successfully.
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