Forex Trading - Economic Indicators in Fundamental Analysis

Forex or currency trading can be analyzed and traded using two methods. One is technical analysis and another is fundamental analysis. This article will focus on fundamental analysis.

Fundamental analysis refers to trading forex based on the economic and political performance of the country as these two factors generally influence the exchange rate. Fundamental traders use a variety of news and economic indicators to support their decisions in trading. The news and numerical indicators are usually announced or published by the government or experts at certain period intervals such as monthly or quarterly. With the availability of internet, these indicators are easily accessible and hence, traders are able to react to the news faster.

There are many numerical indicators available and some have marked influence on the market price while others affect the exchange rate moderately and some even less. The effect of those indicators that highly influence the currency market can be observed in the price chart after the release of the indicators or news. Upon release, there is a catalytic effect leading to a high and rapid fluctuation of the currency market.

Listed below are some of the indicators that notably affect the economic growth and inflation that in turn, influence the exchange rates:

• Gross Domestic Product (GDP) - this indicator represents the monetary value of all products and services generated in a country over a specified period of time. It is considered the greatest indicator of a country's economy. This information is released on the last day of the quarter, 8.30am EST by the Bureau of Economic Analysis.

• Non-Farm Payroll (NFP) - this is one of the statistics included in the employment report. The report details information such as pay roll, unemployment and job growth. NFP is regarded as the most important due to its significance to the economic growth and inflation. This report is released by the Bureau of Labor Statistics on the first Friday of every month at 8.30 EST.

• Consumer Price Index (CPI) - this index is used broadly as a measure of inflation. It is considered as an indicator on the effectiveness of government policy. A rise in CPI signifies inflation while a fall denotes deflation. This piece of news is usually released by Bureau of Labor and Statistics around the 20th of each month, 8.30am EST.

• Retail Sales - it is a significant measure of consumer spending based on the data supplied by the retail stores on the monetary values of the merchandise sold as well as their inventories. This data is published by Bureau of Census around the 12th of each month, 8.30am EST.

There are many more indicators such as Purchasing Managers Index, Industrial Production, Consumer Confidence Index, Trade Balance and Housing Starts which are released on different day of the month and therefore providing ample opportunities to trade forex based on fundamental analysis.