Reading an index or multiple indexes can be a useful way of monitoring your trades and knowing when to take action for FX trading. Below is a list of some commonly used indexes in the forex trading market:
ANZ Commodity Price Index
Consumer Confidence Index
Consumer Price Index
Core PCE Price Index
Employment Cost Index
Ivey Purchasing Managers Index
PCE Price Index
Philadelphia Fed Index
Producer Price Index
Understanding how these indexes work can help improve your trading techniques. You can decide which fit into your style of forex trading, and which to overlook. Below the Ivey Purchasing Managers Index, the Consumer Price Index (CPI), and the Producer Price Index will be discussed.
Ivey Purchasing Managers Index
The Ivey Purchasing Managers Index (PMI) is a unique index that measures purchases made by corporate executives. It indicates the level of change in purchasing and answers that question are corporate executives purchasing more or less for expansion than they were the previous quarter/year? It measures corporate confidence through factory production. If were making more, were selling more, or at least anticipating selling more.
A PMI in the range above 50 can indicate economic growth or expansion, while a PMI below the 50 range can indicate economic contraction or stagnation. The take away for FX trading is that economic growth can increase the value of the currency. The Ivey is released on the first business day of each month by the Institute for Supply Management. It is not as strong of a predictor of inflation as the CPI, but its released much earlier in the month and can provide timely signals for forex brokers
Consumer Price Index
The Consumer Price Index (CPI) measures the change in price of a bundle of specific goods and services in a specific country. Price changes from industries such as food, housing, medical care, clothing, education, transportation, and entertainment are calculated. This index helps to measure inflation, as experienced by a sustained rise in prices for day-to-day living expenses.
Updates for the CPI are released monthly, usually in the second or third week. The CPI is always released after the Producer Price Index. The key takeaway from this is that when inflation rises, central banks have to raise interest rates; high interest rates are bullish for a countrys currency value on
forex trading platforms.
Producer Price Index
The Producer Price Index (PPI) is another index that measures changes in prices of various consumer goods. Similar to the Consumer Price Index, this index helps measure inflation. Whereas the CPI helps measure current inflation, the Producer Price Index is a great indicator for predicting future price inflation. Unlike the CPI, the PPI includes goods that are still in production (i.e. a product that isnt necessarily a finished good ready for retail sale, but it is used to make a finished good ready for retail sale).
Although some forex traders like to use the PPI as an indicator, it is important to keep in mind that the PPI does not factor in any imported goods. To calculate the PPI, surveys are mailed to businesses by random selection. The surveys ask for actual transaction prices on certain products. The index is expressed in percentage form, revealing the overall changes in price from the previous month and previous year. The monthly release date of the PPI varies from country to country.
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