The author is an expert in the field of multi-asset trading.
Top 5 Economic News Events for Forex Trading
When trading forex, it’s very important for new traders to be aware of the various economic indicators and news events and releases that shape the markets. Being able to distinguish which data to look out for, discerning what it means, and knowing how to trade it can give traders an edge and set them up long-term.
Trading technical chart patterns can be challenging, and this is where good knowledge of news event and economic data releases comes in. We’ve compiled a list of five of the most important news releases and economic Indicators you need to know.
1. Central Bank Rate Decision
Each month the world's various Central Banks meet to decide over the interest rates they are responsible for. They face the decision of whether to leave rates unchanged, raise rates or lower rates. The outcome of this decision is extremely important to the currency of the economy and as such, to traders.
An increase in rates is generally seen as bullish for the currency (meaning it will increase in value) and a decrease in rates is generally bearish for the currency (meaning it will decrease in value), whilst an unchanged decision can be either bullish or bearish depending on the economic perception at the time.
Whilst the actual decision itself is crucial, so is the accompanying policy statement where the Central Bank gives its overview of the economy and how they view future outlook. This is also where monetary policy is announced, which concerns vital matters such as the implementation of quantitative easing – an economic concept which we cover in our courses.
2. Gross Domestic Product (GDP)
Gross Domestic Product is an important indicator of economic health in a country. A country’s central bank has expected growth outlooks each year that determine how fast a country should grow, as measured by GDP.
When GDP falls below market expectations, currency values tend to fall and when GDP outdoes expectations, currency values tend to rise. Thus this figure’s release is closely followed by currency traders and can be used to cautiously anticipate Central Bank movements.
3. Consumer Price Index (CPI)
Consumer Price Index is the most widely used inflation measure out of the various economic indicators. The index gives information about the historical average prices paid by consumers for a basket of market goods and highlights whether the same goods are costing more or less for consumers.
Central Banks monitor this release to help guide them in their rate and policy setting. If inflation is seen to be evident, and moving beyond a certain target then interest rate rises are used to counter this.
4. Employment Indicators
The unemployment rate of a country is crucial to markets and is very important to Central Banks as an indicator of the health of an economy. Higher employment leads to interest rate rises as Central Banks aim to balance inflation with growth and as such this figure draws huge market attention from traders.
Alongside the Unemployment rate the two most important labour statistics are the US ADP and NFP figures released each month with the NFP taking prime position. Read our in-depth report on NDP to learn more.
5. FOMC Meeting
Although the Central Bank meetings of all economies are extremely important, US's Federal Open Market Committee meeting takes canter stage as the US Dollar is currently the world’s reserve currency.
Each month the committee meets to set rates and to give it’s pronouncement on current economic conditions and the effectiveness of current monetary policy, inviting forecasts for expectations of future economic conditions and monetary policy.
The committee is made up of members which vote at each meeting, with “Hawkish” members being those in favour of a rate rise and “Dovish” members those favouring a lowering of rates.
The statement released by the Committee is keenly scrutinized by traders looking for clues as to how the Central Bank will behave in the future and even the most seemingly inconsequential of terminology can cause large market moves, as seen in the past concerning the Fed’s usage and then removal of the term “patient”, regarding rate hikes.
The key with all economic indicators and news releases is not just what the actual release means but how the market anticipates the release and subsequently reacts to it, this is where the trading opportunities are created. It can be extremely difficult for new traders seeking to trade news events as the volatility and uncertainty can be overwhelming, but you can follow our Economic Calendar to keep up with the schedule, and make sense of it all in our Newsroom analysis.