Forex market is affected by the international and domestic financial market. These financial markets provide economic indicators for forex traders. Forex traders believe that these economic indicators can really affect the forex currency pair rates.
But first, let’s find out what are the economic indicators?
All over the world, every week governmental and private firms reports many economic surveys with a certain piece of economic and financial information. The reports are analyzed and put together by using very considerate information and data that can affect forex trading.
Previously the experienced professional and economists used this information on a regular fashion. Thanks to the internet it is now easier to create and distribute this information among forex trader and experts.
All the data come are from different types of sources. Some of the information is from the hard data and some are on the basis of opinion concluded from the survey by extrapolating existing data. Some indicators will tell you about the current state of the economy and some will tell you how it performed previously.
The economic indicators which tell you about the previous performance are known as lagging indicators and which tells you the current status is called as coincident indicators.
Economic indicators have a big impact on the forex market. Therefore it is important for a forex trader to know what are the economic indicators which can affect their trading decisions and how to use these forex indicators.
We did thorough research and study and gathered some important economic indicators.
Below are the Top 10 economic indicators that impact the forex market.
1. Unemployment Rate
The unemployment rate is the percentage of the labor force intensely looking for a job or work. Unemployment indicator acts as a lagging indicator. Unemployment is closely related to consumer sentiment and shows the economic performance of the country. It affects the spending of consumers and economic growth.
2. Gross Domestic Product (GDP)
GDP is the most extensive economic indicator. It gives information about the real performance of the economy. It includes the value of all the finished good and service within the country produces in a specific time period. It is released by the government agency of the country. GDP of a country decides the status of the country, therefore, it affects the investors and forex traders’ sentiment.
3.Federal Funds Rate
Federal Funds Rate or Federal Open Market Committee (FOMC) is not a direct economic indicator. FOMC is in charge if US monetary policy and it affect the Fed rates. Fed rate affects the values of the dollar. As the dollar is associated with many countries with import and export it affects the forex trader in investing in currencies.
4. Nonfarm Payrolls (NFP)
Non-farm payroll is the number that shows the number of the created job (except farm work, self-employment, and some government jobs) It has the largest impact on the forex market as it shows the how companies are performing and what the think about the country. This decided the currency value of the country in the forex market.
5.The Consumer Confidence Index
Consumer Confidence Index shows whether they have confidence for their country and its economic conditions, If it is low that shows that consumers of the country are not trusting the economy and therefore the value of currency decrease. The optimism towards the company is necessary. These reports are the leading economic indicators.
6.Consumer Price Index (CPI)
The consumer price index calculate the change in prices at the consumer level on the reference of a few hundred of goods and services. The CPI shows the financial health of consumers.
7.Industrial Production Index
The IPI is a monthly economic indicator calculate real output in the manufacturing, mining, gas industry and electric industry relative to a base year. This indicator shows the strength of the performance of industries of a country and therefore it decided the investment sentiment of forex traders.
This indicator gauges the manufacturing and related economic health of the country. This provided insight into the manufacturing sector. It is calculated by the ratio of industrial production and index of full capacity.
Every forex trader should follow this indicator as well. It unveils the sales of the retail sectors that are used for the measure of the strength of personal consumption which affects the GDP. It is released by the department of commerce.
10. Durable Goods Orders
Businessmen and consumer order durable goods when they believe that the economy is good and it is improving. A durable goods report is an important economic indicator that shows that economic is trending upward.
There are more economic indicators that affect the forex market but above 10 are the most important ones. Every forex trader should look for these indicators before making any trading decision. Apart from these, there are also forex indicators which are mostly technical indicators that show the complex information in chart form.