Relevant economic release in forex trading
Fundamental analysis is one of the main components of forex trading. The concept behind this kind of analysis is that economic performance drives supply and demand of a currency, and these factors determine its value. Because of that, forex traders monitor economic data in order to figure out if an economy is doing well or not.
The main concept behind this kind of analysis is that strong economic data will boost a currency’s value because it would mean that the economy is growing and performing well, thus reflecting high demand for its securities. On the other hand, weak economic data will weigh on a currency’s value because it would mean that the economy is contracting and not performing well, therefore reflecting weak demand for its assets. Economic performance is also seen to be an indicator of monetary policy decisions and interest rate changes later on.
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.
Another high-impact economic report is the employment data. This is treated as a leading indicator of economic growth as an increase in hiring tends to result to higher consumer spending while a drop in employment usually translates to lower consumer spending. On top of that, average wages are also monitored as indicators of whether consumers will be more willing to spend or not.
Another important economic release is the consumer spending report or the retail sales figure. It shows how much consumers were able to contribute to overall GDP growth and it is also considered a leading indicator of production and hiring. This is because higher retail sales means that demand for products is high, thereby accelerating manufacturing and production activity, as well as hiring in those sectors. Conversely, lower retail sales reflects poor demand for products, which leads to a reduction in manufacturing and production, and consequently lower hiring in those sectors.
Last but not least, the inflation or CPI report is also a high-impact economic report. This is usually treated as an indicator of whether the country’s central bank has room to ease or not. Low inflation figures means that the central bank will be able to loosen monetary policy or cut interest rates without damaging the economy, which means that there could be lower returns on the currency. This will drag the currency’s value down. Conversely, high inflation figures mean that the central bank has room to tighten monetary policy or increase interest rates, which translates to higher returns on the country’s currency, therefore boosting its value.
Economic reports usually have a material impact on forex price action as they show demand for the currency. This is why forex traders monitor these economic reports very closely Check out his forex insights
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