With fundamental analysis one of the key components in determining currency price action, forex traders regularly watch the release of economic reports. These releases tend to influence price action as they show whether the respective economy is performing well or not and if demand for its assets is up or down. That is why forex traders usually monitor economic data to determine if a currency will appreciate or depreciate.
Basically, indicators reflecting good economic performance are positive for a currency because it shows that the country is growing, which means that there will be strong demand for its assets. It might also be a hint of future interest rate increases, which means higher returns on its securities in the near term. On the other hand, indicators reflecting poor economic performance are negative for a currency since these show that the country is contracting, which means that there's low demand for its assets. This could also be indicative of an interest rate cut in the future, which would result to low returns for the country's securities in the coming months.
The GDP or gross domestic product is the most monitored economic report by forex traders. This takes in all the products and services produced in the country and compares the relative percentage values from the previous periods. As such, it is treated as the most comprehensive indicator of economic performance as it shows whether the economy grew or contracted during the reporting period. This report is released less frequently compared to other data so it usually has a more pronounced impact.
Second, the employment report is also another top-tier economic release. Higher employment usually leads to more willingness to spend and higher consumer spending while lower employment forces individuals to keep their hands in their pockets and lead to lower consumer spending. Average wages are also usually reported along with the employment data in order to indicate whether individuals end up with more disposable income or not.
In line with the employment report, the retail sales release is also a closely watched economic event. This is an actual measure of consumer spending in the country and this component usually takes up a huge chunk of the country's GDP. Stronger than expected retail sales translates to higher manufacturing and production to meet demand, which later on results to increased hiring. Weaker than expected retail sales means lower manufacturing and production as demand weakens, and this carries on to slower hiring.
Inflation or CPI (consumer price index) is also a high-impact economic report. Inflation figures are usually viewed as hints of whether the central bank can afford to tighten or loosen monetary policy in order to keep their economies stable. Weak inflation shows room for further easing, which translates to increased liquidity or lower interest rates, resulting in weak returns for the currency and dragging down its value. High inflation means there's scope for monetary policy tightening, which translates to tight liquidity or high interest rates, resulting to higher returns for the currency and pushing up its value.
Basically, indicators reflecting good economic performance are positive for a currency because it shows that the country is growing, which means that there will be strong demand for its assets. It might also be a hint of future interest rate increases, which means higher returns on its securities in the near term. On the other hand, indicators reflecting poor economic performance are negative for a currency since these show that the country is contracting, which means that there's low demand for its assets. This could also be indicative of an interest rate cut in the future, which would result to low returns for the country's securities in the coming months.
The GDP or gross domestic product is the most monitored economic report by forex traders. This takes in all the products and services produced in the country and compares the relative percentage values from the previous periods. As such, it is treated as the most comprehensive indicator of economic performance as it shows whether the economy grew or contracted during the reporting period. This report is released less frequently compared to other data so it usually has a more pronounced impact.
Second, the employment report is also another top-tier economic release. Higher employment usually leads to more willingness to spend and higher consumer spending while lower employment forces individuals to keep their hands in their pockets and lead to lower consumer spending. Average wages are also usually reported along with the employment data in order to indicate whether individuals end up with more disposable income or not.
In line with the employment report, the retail sales release is also a closely watched economic event. This is an actual measure of consumer spending in the country and this component usually takes up a huge chunk of the country's GDP. Stronger than expected retail sales translates to higher manufacturing and production to meet demand, which later on results to increased hiring. Weaker than expected retail sales means lower manufacturing and production as demand weakens, and this carries on to slower hiring.
Inflation or CPI (consumer price index) is also a high-impact economic report. Inflation figures are usually viewed as hints of whether the central bank can afford to tighten or loosen monetary policy in order to keep their economies stable. Weak inflation shows room for further easing, which translates to increased liquidity or lower interest rates, resulting in weak returns for the currency and dragging down its value. High inflation means there's scope for monetary policy tightening, which translates to tight liquidity or high interest rates, resulting to higher returns for the currency and pushing up its value.
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Fundamental analysis is an important component of forex trading, which is why economic reports play an important role in determining price action. Learn all about the main economic releases that you should watch out for when you trade forex Nice forex article
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