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 most closely watched among the economic releases is the GDP report. This figure, which is the sum of all products and services in the local economy, is considered the most concise indicator of economic performance. The GDP is usually reported in percentage terms relative to the economy's performance in the previous period so it reflects growth or contraction in the economy. In addition, since the GDP is released quarterly, it tends to have a huge impact on the relevant currency.
Next, the jobs data is also an important economic release that is monitored by forex traders. An increase in hiring is generally accompanied by an increase in spending as consumers have stable jobs and more money to spend. A decrease in hiring is usually followed by a decrease in consumer spending as individuals would rather keep their cash in a weak labor environment. In addition, average wages are also usually reported in the employment release to give traders an idea if individuals have more money in their wallets or not.
Next, the consumer spending or retail sales release is another important economic indicator for forex traders. Aside from showing how much consumer spending will be able to contribute to overall economic growth, stronger than expected retail sales means that manufacturers and producers will have to pick up activity and hiring in order to cater to the rise in demand. On the other hand, weaker than expected retail sales data means that the manufacturing and production industries will have to reduce their activity and hiring as demand wanes.
Lastly, the inflation report also carries huge weight as a fundamental analysis factor. This gives an indication of whether the central bank will be able to adjust monetary policy to spur growth or not. Weak inflation usually means that there's room for further quantitative easing, which suggests lower returns on the currency and therefore drags its value down. Strong inflation reflects the likelihood of monetary policy tightening or interest rate hikes, which mean higher return for the country's assets and therefore drives 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 most closely watched among the economic releases is the GDP report. This figure, which is the sum of all products and services in the local economy, is considered the most concise indicator of economic performance. The GDP is usually reported in percentage terms relative to the economy's performance in the previous period so it reflects growth or contraction in the economy. In addition, since the GDP is released quarterly, it tends to have a huge impact on the relevant currency.
Next, the jobs data is also an important economic release that is monitored by forex traders. An increase in hiring is generally accompanied by an increase in spending as consumers have stable jobs and more money to spend. A decrease in hiring is usually followed by a decrease in consumer spending as individuals would rather keep their cash in a weak labor environment. In addition, average wages are also usually reported in the employment release to give traders an idea if individuals have more money in their wallets or not.
Next, the consumer spending or retail sales release is another important economic indicator for forex traders. Aside from showing how much consumer spending will be able to contribute to overall economic growth, stronger than expected retail sales means that manufacturers and producers will have to pick up activity and hiring in order to cater to the rise in demand. On the other hand, weaker than expected retail sales data means that the manufacturing and production industries will have to reduce their activity and hiring as demand wanes.
Lastly, the inflation report also carries huge weight as a fundamental analysis factor. This gives an indication of whether the central bank will be able to adjust monetary policy to spur growth or not. Weak inflation usually means that there's room for further quantitative easing, which suggests lower returns on the currency and therefore drags its value down. Strong inflation reflects the likelihood of monetary policy tightening or interest rate hikes, which mean higher return for the country's assets and therefore drives 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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