Forex Trading- Five Economic Indicators You Need To Follow

Regulators and many governmental agencies release important data revealing the state of the economy. These releases influence the prices of currencies. As a beginner you should know at least following economic indicators. Sometimes they cause hundreds of pips of move. So you should know when they come out and is it wise to trade or just sit on the sideline.

The Impact of Employment

Non farm payroll (NFP) is one of the major economic indicators influencing the currency market. This data comes out of America on first Friday of every month. It gives the number of jobs added or lost during the last month. It is an indicator of the health of US economy. Increased jobs means better state of the economy and increased consumer confidence. It is a propellant of growth. Strong data is good for US dollar.

A Measure of Inflation

Consumer price index is also one of the closely watched economic indicators. It gives an idea about the inflation by measuring the change in the price of certain goods and services. Rising CPI means the inflation is high and savings are reducing. Central banks rise interest rates to curb the inflation. Decreasing CPI means deflation which can force central bankers to reduce the interest rates. CPI is one of the indicators of future interest rate policy of central bank. It is considered important by everyone in the currency market. Positive CPI is good for the currency while negative data is considered to be depreciative. The data for last month is announced on the 20th of current month.

The Strength of Economy

Gross domestic product is one of the important economic indicators to gauge the strength of the currency. GDP is nothing but the overall value of the goods and services produced by the economy over a period of time. GDP is referred by the policymakers to make important decisions. Hence it is an important indicator. Positive GDP indicates more production. Increased production is good for the currency. It is usually announced on the last Friday of every quarter.

An Indicator of Trades

Of the economic indicators tracked, trade balance report is a vital data watched by traders around the world. Demand and supply determine the price of currency. The trades of that country with others determine the demand of the currency of that particular currency. If the goods produced by that country are popular in other countries then it strengths the currency. The difference between export and import is revealed by trade balance report. If the data is positive then it is good for the currency. Negative data will depreciate the currency. US release trade balance report monthly.

The State of Manufacturing Sector

Purchasing managers index is one of the economic indicators which is followed widely. It indicates how the manufacturing sector is doing. PMI gets its value from five different indexes namely new orders, inventory, production, supplies and employment environment. It is announced on the first business day of every month. A PMI index above 50 is considered expansion of the economy and hence considered good for the economy and the currency of that currency. PMI below 50 suggests that the economy is contracting which in turn reduces the strength of the currency.

Economic indicators are judiciously followed by everyone in the financial community. They move the markets considerably and hence provide excellent trading opportunities. You dont need advanced degree to understand them. With practice you can trade in such time and handle the volatility to your advantage successfully.