The Role Of News Events In Generating Forex Profits – 74% of retail trader accounts lose money when trading CFDs with this provider. Research involves risks and is not suitable for all investors. CFDs are compound instruments and come with a high risk of losing money quickly due to leverage. 74% of retail trader accounts lose money when trading CFDs with this provider. Consider whether you understand how CFDs work and whether you can afford the high risk of losing money.
Economic indicators can have significant effects on Forex and CFD (contracts for difference) prices. Therefore, many traders keep a sharp eye on the economic calendar, so that each potential volatility is as well as the bumps that lie ahead on the road.
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Around the world, various governmental and non-governmental organizations report on a regular basis, with certain economic indicators. The ways in which these relationships are reported can vary greatly. Sometimes the data is as direct as reporting monthly sales from a particular segment of the economy. Other than the hard data they can’t, but based on the opinions that are made within the surveys. However, others may have findings by extrapolating existing data.
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They will teach you some information about the current state of the economy; others could confirm what the economy had previously done; and others foretell what is to come. This final set – which is the leading economic index – is of particular interest to business traders, as they offer the best understanding of the likely trajectory of future economic activity. The indicators that tell us about the current state of the economy are called “coincidences”. Those things which confirm what has already been done are known as lazy indicators.
The main difficulty for traders, who are already starting from there, is to know which are the main ones, which affect the prices the most – and which ones have a low impact. This knowledge is useful when many economic indicators are released on the same day, and it is not really possible to keep an eye on them all. In order to explore and help in this area, we have put together an explanatory list of Economic First Names.
In our financial indicators, we have listed those that are considered the most important. All of these have the potential to exert a strong effect on financial markets. As the US economy is the largest economy in the world, and has some influence on global market performance, our list focuses on US news, in an effort to provide you with the best economic indicators. List of 11 Economic Indicators Impacting the Forex Market1. Domestic Product (GDP)
GDP is a broad measure of the overall health of the economy. It compounds over time so that its direct effect on Forex and CFD prices often changes – and by the time the data is released, many parts are already known, and therefore expectations are often quite accurate. As such, if the number differs significantly from expectations, it still has the potential to move the market.
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Despite the lack of opportunity, it is still an important indicator to understand that it is one of the best measures to confirm where we stand in the business cycle.
The business cycle is a key concept in modern economics. It consists of a period of expansion, in which many areas of the economy grow at the same time, and a period of recession, when economic activity contracts. Since the largest measure of economic activity is GDP, economists tend to determine where we are in the business cycle by looking at the cycles of growth and contraction in GDP.
The technical definition of a recession is two consecutive quarters of contraction in GDP. The recession ended the growth quarter at the same time. Politicians, policymakers, and economic analysts all weigh heavily on this indicator because it is such a comprehensive measure. Investment banks adopting a top-down approach to Forex analysis will begin by making projections for the overall financial situation. GDP is a key component of such macroeconomic analyzes of foreign exchange markets.
Professional traders, it is necessary to be aware, but you also need to know that, because it is a slow GDP index, its main use is to confirm what we are already waiting for. Lack of time means that its usefulness as a trading tool is limited to short and medium term trading. US GDP only comes out once a quarter, and even the first estimate is many months into the past.
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It will therefore be useful something that can be used as a proxy for GDP, but more often it refers to the next indicator.2. Nonfarm Payrolls (NFP)
The one-minute EUR/USD chart below illustrates such a move. The vertical blue line marks the release of the Employment Situation report that was released on November 1, 2019. See how sharply the price moved in just one moment? Also notice how much larger the average size of each bar becomes after the release of the report compared to before.
Source: MetaTrader 5 – EUR/USD M1 Chart – Data Range: November 1, 2019 12:59 PM – 16:19 PM GMT – Please note: A forecast such as this is not a reliable index of future events, or future performance.
Part of the answer is a timely report. The employment cycle and the business cycle are closely related and, historically, changes in non-farm payrolls (NFPs) have changed in a very similar way to quarterly GDP. Close to this ratio means that wage data can be used as a proxy for GDP.
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The stark difference between the two is that nonfarm payrolls come out monthly, reporting in the month that ends a few days before. On the other hand, GDP is reported quarterly, and with a large delay.
Another part of the answer is the impact on the state’s finances. Maximum employment and stable prices are two of the FED’s (Federal Reserve) three monetary objectives (these two key objectives are often referred to as the dual mandate of the FED). It follows that labor market data can have a significant effect on market perceptions of future financial direction.3. Unemployment Rate
The unemployment rate is defined as the percentage of the active labor force. During recovery periods, unemployment acts as a lagging indicator. They tend to see unemployment continue to rise even after GDP declines. Leisure is also closely linked with consumer sentiment (see number five on our list). Extended periods of vacation are very damaging to consumer sentiment, and as a result, even consumer spending hurts economic growth.
As with nonfarm payrolls, unemployment data CFDs provide market insights into one of the key metrics the FED tracks. This means that any strong deviation from expectations is likely to have a big impact on the Forex and stock markets. All things being equal, US labor market weakness should be considered conventionally unsustainable for wage prices and for the US Dollar.
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The Federal Open Markets Committee (FOMC) meets eight times a year as part of its fair schedule to determine the US currency. The outcome of the FOMC meeting can significantly affect the Forex market if there is any volatility from the expected course. The fundamental key that drives Forex rates is the level of interest in the two countries involved, and the expectations around those interests.
If the FED makes a change in the federal funds rate, or simply changes perceptions about future monetary policy, it affects the US Dollar, the most important currency in the world. As part of the statement released after each FOMC meeting, the FED provides guidance on the expected monetary path.
This measure is reasonably recent, given that greater transparency was intended as part of the effort to reduce volatility in financial markets. As a result, financial changes are usually communicated in advance. This means that forward guidance itself has the potential to move markets, just like an actual change in policy. A serious Forex or CFD trader should always make sure that they are aware of the Calendar of FOMC Meetings.5. Consumer Confidence Index / University of Michigan Consumer Sentiment Index
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At number five on our list we have two reports. The Consumer Confidence Index, compiled by the Conference Board, and the Consumer Sentiment Index, compiled by the University of Michigan. There are many consumer surveys, but these two are the best known and widely followed
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