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.

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Forex Trading and Fundamental Analysis

No serious discussion of forex trading would be complete without talking about the subject of fundamental analysis, and it's bearing on the markets. Forex traders should always keep their "finger on the pulse" of what is going on behind the economic scenes of the various countries whose currencies they trade.

Fundamental Analysis can best be defined as the study of the underlying economic and political factors that influence a particular currency. The goal is to attempt to predict price action and trends by looking at many different economic indicators and governmental policies.

Fundamentals for a currency may include interest rates, central bank policies, employment figures, and Gross Domestic Product numbers. These statistics are made public on a regular basis by most governments, and are watched closely by the astute foreign exchange trader.

Why bother with fundamental analysis? The simple answer is because only by looking at the fundamental factors that influence currency prices can you gain an accurate long-term view of where the prices are going.

It gives you the "raw material" as to what is driving prices, but it still does not give a trader the entry and exit points of his individual trades. It will help the trader, though, in developing a plan based on his unique trading strategies and goals.

Many of these economic reports are watched closely by traders, and can sometimes have huge short-term effects on market movement. Some astute forex traders will trade the markets at the time of these releases, hoping to make quick profits from the huge moves that often occur.

Unless you are experienced in trading, and familiar with the huge price swings during these report releases, it is best to stay out of the markets until they settle back down to their normal price movements.

The two releases in the US that tend to move the markets the most are the Employment report and the Federal Open Market Committee (FOMC) meeting minutes release.

While on the surface it might appear necessary that a trader needs an advanced degree in economics, actually a few simple guidelines are all that is needed to make sense and trading decisions based on this data.

Does the data strengthen or weaken the currency of that country? What are the long-term stated goals of that country's policy makers? Do their policies and data support more investment in that country, or make investors more wary of putting their money there?

Fundamental analysis can certainly appear to be a confusing subject and best left to professional economists. However, the retail forex trader can glean enough information from monitoring the major indicators to more accurately predict the strength or weakness of a particular currency. It is a fascinating and never ending study, to be sure!

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Forex Trading Education - 3 Major Fundamental Indicators

Fundamental indicators are basically news announcements that involve the sensitive economic data of a country. Forex traders take a very keen interest to these announcements because the currency markets typically react significantly to them.

In this article, I will briefly cover the 3 major indicators that affect the currency markets the most.

Indicator #1: Federal Open Market Committee (FOMC) Meetings

The FOMC meets eight times a year to review and evaluate the effects of monetary policies and to make appropriate adjustments when required. This is effectively the most important event in Forex trading, in terms of price volatility. Interest rate increases and decreases typically affect currency prices to a great extent.

Indicator #2: U.S. Non-Farm Payroll

This is a significant economic announcement that is released on the first Friday of every month. The non-farm payroll announcement basically reports on the strength of the nation's business and government sectors in terms of the number of workers. Generally, a strong non-farm payroll figure indicates a robust economy. If positive figures are expected, the U.S. Dollar will typically rally.

Indicator #3: Gross Domestic Product (GDP)

This indicator measures the sum of all goods and services produced by all the businesses in a country. GDP figures indicate whether a country is expanding or shrinking. It is a broad measure of a country's economic power and growth. Good GDP figures usually inspire confidence in investors, leading to a rally of that country's currency value.

At this point, I would like to mention that these fundamental indicators should be mainly used for educational purposes only. They should be used to back up trading decisions, and should NOT be used alone to initiate trade entries. While news trading can be potentially lucrative, chances are that you'll often find yourself at the losing end of the trade instead. Don't news trade!

Read more...

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.

Read more...

Forex Trading Education - 3 Major Fundamental Indicators

Fundamental indicators are basically news announcements that involve the sensitive economic data of a country. Forex traders take a very keen interest to these announcements because the currency markets typically react significantly to them.

In this article, I will briefly cover the 3 major indicators that affect the currency markets the most.

Indicator #1: Federal Open Market Committee (FOMC) Meetings

The FOMC meets eight times a year to review and evaluate the effects of monetary policies and to make appropriate adjustments when required. This is effectively the most important event in Forex trading, in terms of price volatility. Interest rate increases and decreases typically affect currency prices to a great extent.

Indicator #2: U.S. Non-Farm Payroll

This is a significant economic announcement that is released on the first Friday of every month. The non-farm payroll announcement basically reports on the strength of the nation's business and government sectors in terms of the number of workers. Generally, a strong non-farm payroll figure indicates a robust economy. If positive figures are expected, the U.S. Dollar will typically rally.

Indicator #3: Gross Domestic Product (GDP)

This indicator measures the sum of all goods and services produced by all the businesses in a country. GDP figures indicate whether a country is expanding or shrinking. It is a broad measure of a country's economic power and growth. Good GDP figures usually inspire confidence in investors, leading to a rally of that country's currency value.

At this point, I would like to mention that these fundamental indicators should be mainly used for educational purposes only. They should be used to back up trading decisions, and should NOT be used alone to initiate trade entries. While news trading can be potentially lucrative, chances are that you'll often find yourself at the losing end of the trade instead. Don't news trade!

Read more...