Regulators and many governmental agencies release important data revealing the state of the economy. These releases influence the prices of currencies. These economic indicators should be studied by everyone in the financial markets. 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 Unemployment Data
Non farm payroll (NFP) is one of the major economic indicators influencing the currency market. 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 gives an idea about the inflation by measuring the change in the price of certain goods and services. Rising CPI means the inflation is high and savings are reducing. In response to this inflation, central banks increase the interest rates. Decreasing CPI may force central bankers to decrease the rates. CPI is one of the indicators of future interest rate policy of central bank. 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 Output of Economy
Gross domestic product is one of the important economic indicators to gauge the strength of the currency. GDP is the value of goods and services produced in the country. It is very important figure as it is cited by policymakers to decide the policy. It is a critical data. Positive GDP indicates more production. Increased production is good for the currency. It is usually announced on the last Friday of every quarter.
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 the trade balance report every month.
The State of Manufacturing Sector
Purchasing managers index is one of the economic indicators which is followed widely. It indicates how the manufacturing sector is doing. This data is calculated by using five different figures which are new orders, inventory, production, supplies and employment environment. It is announced on the first business day of every month. A PMI index above 50 is considered expansion of the economy and hence considered good for the economy and the currency of that currency. On the other hand, a reading below 50 indicates the contraction and depreciation of the value of the currency.
Economic indicators are judiciously followed by everyone in the financial community. The volatility these indicators produce is a good opportunity for traders to catch. You don’t need advanced degree to understand them. You can use the big moves during data release for making big profits in less time.
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