Sources of information
Primarily, these are reports released by government agencies or private think tanks. Such reports provide information on domestic economic metrics for a particular period. They enable analysts to judge a national economic output on its expansion or contraction as well as performance of certain economic sectors. Traders should be aware of essential reports issued by governments in advanced global economies.
The UK. Annual statistic reports are provided by the Office for National Statistics:
The Blue Book contains information on the gross domestic product, national revenue, budget spending nationwide, current account balance, and lots of other stats.
The Pink Book expands in minor details on domestic and foreign trade, government investments, the country’s assets and debts, and other issues, breaking down into regions and economic sectors.
The EU. The Eurostat yearbook is a survey released annually by the statistics agency run by the European Commission. The report unveils a wide array of data to paint a picture of the state of affairs in the economy, finance, international trade, etc. around the whole of the EU, its member countries, leading global economies, and countries-applicants to the EU.
The US. The Bureau of Economic Analysis is responsible for collecting, processing, and releasing statistics..
Transactions with the US dollar account for more than half of all forex operations. Therefore, you are highly recommended to give priority to reports by US statistic agencies because they serve as main market catalysts, launching market trends. Besides, governments of other countries refer to US economic metrics in their own economic reports. So, we suggest that you get to know some economic indicators employed by the US Bureau of Economic Analysis that are of major importance in FX trading. Such indicators impact directly on volatility of currencies, thus opening new trading opportunities to forex speculators.
Gross Domestic Product (GDP)
GDP is viewed as the broadest barometer of economic conditions in any country. It represents the overall value of all goods and services produced in the country within one year. GDP is known as a lagging indicator, i.e. it signals changes after economic or financial changes have actually occurred. For this reason, most traders take notice of preliminary GDP data that is unveiled before an annual report is released.
For example, the US Bureau of Economic Analysis reports two flash estimates. The advance estimate is based on the analysis of economic performance for a few months. The preliminary estimate clears up the first one after a short while. A considerable difference between these estimates may cause high volatility in the US dollar. In other words, the fact may trigger gyrations in the greenback’s current value.
GDP is considered the equivalent to a company’s gross revenue because this indicator allows analysts to judge on its economic performance. Therefore, GDP matters a lot to assess the fair currency value.
Retail Sales Index
A report on retail sales is a survey on all retailers in a country, comprising their overall revenues for a particular period. Such data is especially helpful as a barometer of consumer spending that also takes into account seasonal variables. Retail sales are used to forecast more important lagging indicators such as GDP and to evaluate immediate economic development. Significant changes in retail sales also might fuel high volatility.
Industrial Production Index
This indicator displays changes in output of the manufacturing and mining sectors as well as of the energy industry. Besides, such surveys also report on capacity utilization of production facilities. The most favorable situation for any country is when industrial production rates increase with almost full employment of production capacities.
Traders should pay special attention to the energy sector as this branch is oftentimes rather unstable. A notable difference between two consecutive metrics sparks off a strong market response in light of publication. As a result, the national currency is trading with higher volatility.
Other closely watched economic indicators are a purchasing managers index (PMI), a producer price index (PPI), durable goods orders, consumer price index (CPI), and housing starts.
Apart from that, do not forget about private research organizations! One of the best known is a consumer sentiment index by the University of Michigan. Such private surveys are a valuable resource for traders if they are deciphered properly.
Political Factors
A few political factors usually set the currency market in motion. Here are the most meaningful.
G7 summits, summits of large-scale trade and economic alliances
Presidential and federal elections in advanced global economies
Statements by state leaders: presidents, ministers, central banks’ governors, etc.
Armed conflicts, the threat of terrorist attacks, revolutions, etc.
A market response to various political events could be much less unpredictable than to a publication of economic data. For this reason, novice traders are not recommended to focus entirely on the analysis of the political agenda.
Psychological factors
As a rule, traders follow the market rule: buy the rumor, sell the fact. However, this strategy is fraught with pitfalls because it requires a prompt reaction from traders. It is essential to grasp the trend launched by a particular rumor and to exit the market in due time. The opposite scenario could entail heavy losses if the rumor is not confirmed. This approach poses even bigger risks for beginners than the focus on political factors.
Primarily, these are reports released by government agencies or private think tanks. Such reports provide information on domestic economic metrics for a particular period. They enable analysts to judge a national economic output on its expansion or contraction as well as performance of certain economic sectors. Traders should be aware of essential reports issued by governments in advanced global economies.
The UK. Annual statistic reports are provided by the Office for National Statistics:
The Blue Book contains information on the gross domestic product, national revenue, budget spending nationwide, current account balance, and lots of other stats.
The Pink Book expands in minor details on domestic and foreign trade, government investments, the country’s assets and debts, and other issues, breaking down into regions and economic sectors.
The EU. The Eurostat yearbook is a survey released annually by the statistics agency run by the European Commission. The report unveils a wide array of data to paint a picture of the state of affairs in the economy, finance, international trade, etc. around the whole of the EU, its member countries, leading global economies, and countries-applicants to the EU.
The US. The Bureau of Economic Analysis is responsible for collecting, processing, and releasing statistics..
Transactions with the US dollar account for more than half of all forex operations. Therefore, you are highly recommended to give priority to reports by US statistic agencies because they serve as main market catalysts, launching market trends. Besides, governments of other countries refer to US economic metrics in their own economic reports. So, we suggest that you get to know some economic indicators employed by the US Bureau of Economic Analysis that are of major importance in FX trading. Such indicators impact directly on volatility of currencies, thus opening new trading opportunities to forex speculators.
Gross Domestic Product (GDP)
GDP is viewed as the broadest barometer of economic conditions in any country. It represents the overall value of all goods and services produced in the country within one year. GDP is known as a lagging indicator, i.e. it signals changes after economic or financial changes have actually occurred. For this reason, most traders take notice of preliminary GDP data that is unveiled before an annual report is released.
For example, the US Bureau of Economic Analysis reports two flash estimates. The advance estimate is based on the analysis of economic performance for a few months. The preliminary estimate clears up the first one after a short while. A considerable difference between these estimates may cause high volatility in the US dollar. In other words, the fact may trigger gyrations in the greenback’s current value.
GDP is considered the equivalent to a company’s gross revenue because this indicator allows analysts to judge on its economic performance. Therefore, GDP matters a lot to assess the fair currency value.
Retail Sales Index
A report on retail sales is a survey on all retailers in a country, comprising their overall revenues for a particular period. Such data is especially helpful as a barometer of consumer spending that also takes into account seasonal variables. Retail sales are used to forecast more important lagging indicators such as GDP and to evaluate immediate economic development. Significant changes in retail sales also might fuel high volatility.
Industrial Production Index
This indicator displays changes in output of the manufacturing and mining sectors as well as of the energy industry. Besides, such surveys also report on capacity utilization of production facilities. The most favorable situation for any country is when industrial production rates increase with almost full employment of production capacities.
Traders should pay special attention to the energy sector as this branch is oftentimes rather unstable. A notable difference between two consecutive metrics sparks off a strong market response in light of publication. As a result, the national currency is trading with higher volatility.
Other closely watched economic indicators are a purchasing managers index (PMI), a producer price index (PPI), durable goods orders, consumer price index (CPI), and housing starts.
Apart from that, do not forget about private research organizations! One of the best known is a consumer sentiment index by the University of Michigan. Such private surveys are a valuable resource for traders if they are deciphered properly.
Political Factors
A few political factors usually set the currency market in motion. Here are the most meaningful.
G7 summits, summits of large-scale trade and economic alliances
Presidential and federal elections in advanced global economies
Statements by state leaders: presidents, ministers, central banks’ governors, etc.
Armed conflicts, the threat of terrorist attacks, revolutions, etc.
A market response to various political events could be much less unpredictable than to a publication of economic data. For this reason, novice traders are not recommended to focus entirely on the analysis of the political agenda.
Psychological factors
As a rule, traders follow the market rule: buy the rumor, sell the fact. However, this strategy is fraught with pitfalls because it requires a prompt reaction from traders. It is essential to grasp the trend launched by a particular rumor and to exit the market in due time. The opposite scenario could entail heavy losses if the rumor is not confirmed. This approach poses even bigger risks for beginners than the focus on political factors.
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