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.
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.
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.
Inflation or CPI (consumer price index) is also a high-impact economic report. Inflation figures are usually viewed as hints of whether the central bank can afford to tighten or loosen monetary policy in order to keep their economies stable. Weak inflation shows room for further easing, which translates to increased liquidity or lower interest rates, resulting in weak returns for the currency and dragging down its value. High inflation means there's scope for monetary policy tightening, which translates to tight liquidity or high interest rates, resulting to higher returns for the currency and pushing 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.
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.
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.
Inflation or CPI (consumer price index) is also a high-impact economic report. Inflation figures are usually viewed as hints of whether the central bank can afford to tighten or loosen monetary policy in order to keep their economies stable. Weak inflation shows room for further easing, which translates to increased liquidity or lower interest rates, resulting in weak returns for the currency and dragging down its value. High inflation means there's scope for monetary policy tightening, which translates to tight liquidity or high interest rates, resulting to higher returns for the currency and pushing 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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