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Economic Releases You Can Trade
Posted on Jun 19, 2015
Economic Releases You Can Trade
The forex economic calendar is one of the most useful tools for traders, especially those who incorporate fundamental analysis in determining their currency biases. A typical forex calendar lists the upcoming data releases and indicates whether those could have a strong or low impact on the currency involved. These also post the previous period’s data results to provide the trader with a point of comparison in gauging if improvements were made, along with the market consensus.
Simply put, a stronger than expected release or one that marks a considerable improvement from the previous period’s data could lead to a rally for the currency since these could eventually translate to tighter monetary policy. On the other hand, a weaker than expected release or one that is lower compared to the previous period’s data could lead to a selloff for the currency since these could result to easier monetary policy.
Economic data tends to be one of the most important catalysts for short-term movements in any market, but this is particularly true in the currency market, which responds not only to U.S. economic news, but also to news from around the world.
Not all economic reports listed on the forex calendar are ideal to trade though, as some could simply generate small price reactions or serve as bigger picture indicators rather than resulting to significant short-term moves. The larger reports, such as the GDP and CPI, tend to large and prolonged price movements since these provide more or less an idea of how the economy is faring from a bird’s eye view.
What Are the Key Releases?
When trading news, you first need know which releases are actually expected that week. Second, it is key for you to know which data is important. Generally speaking, these are the most important economic releases for any country:
1. Interest rate decision !
2. Industrial production
3. Inflation (consumer price or producer price)
4. Unemployment !
5. Manufacturing sector surveys
6. Trade balance
7. Business sentiment surveys
8. Retail sales
9. Consumer confidence surveys
In particular, the GDP or gross domestic product provides a neat number that sums up how the economy fared and this is usually reported on a quarterly basis. As such, it is one of the clearest gauges of economic growth, as a positive GDP reading would mean that the economy expanded over the period while weak GDP reading would signal contraction. Consecutive quarters of economic contraction would then constitute a recession, which turns out to be very bearish for that country’s currency.
The CPI or consumer price index measures changes in price levels and this is usually reported on a monthly basis. It is also closely linked to monetary policy since the central bank’s mandate is to maintain price stability. When prices keep climbing, the central bank has to employ its monetary policy tools in order to prevent inflation from surging out of control. Conversely, when prices keep dropping, the central bank also has to make monetary policy adjustments in order to stoke inflationary pressures and prevent a deflationary cycle from occurring.
On the other hand, data such as producer prices or wholesale sales don’t generally result to significant price moves for the currency involved. Instead, these could serve as underlying data when one is trying to predict how larger reports such as core CPI or consumer spending might turn out.
Retail sales, manufacturing production, or trade balance releases tend to have varying levels of impact depending on the currency involved. Trade-dependent exporting economies, such as Australia ,New Zealand and Canada , have currencies that are more sensitive to trade balance data. Meanwhile, economies that are heavily reliant on the consumer sector have currencies that react to retail sales and household spending reports.
Look what is said Cromwell Coulson CEO of OTC Markets Group Inc. :
“Retail investors who think they can be good short-term traders are kidding themselves. They should consider economic reports as part of their overall investment strategy, but the idea that we have a level playing field for intelligence and retail investors can in the short term out-trade professional high-frequency traders is wrong.”
This is just a sample of some of the more liquid derivatives based on the currencies above:
Subject to continued …
P.S. The our advice is, do not trade during important news. Wait 30-45 minutes thereafter.
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