There are many factors which affect which way the market moves. It is very important to know and understand the different factors that are most potent to influence price fluctuations every day. The Forex market changes under the influence of many economic indicators, such as indices – these play a major role in how prices are formed.
Different economic indicators are usually a product of governments or private organizations, which are able to conduct in depth analysis of economic events and developments. Such indices can be used to get a handle on the economic state of any country. Such reports are usually well rounded and cover different topics, such as how healthy the particular economy is, and how stable the political situation is in that country.
An ordinary, good broker can tell which trades will be potentially by just looking at these economic indicators. The reports based on indices are released at a pre-scheduled time, on a regular basis, and clearly indicate whether a country is tending towards economic growth, or recession/crisis.
The fundamental analysis of economies of different nations is one of the key tricks that are typically used by Forex traders. Factors such as unemployment rates, housing stats, government policies, all have heavy influence on market fluctuations. When a country has optimistic sentiments towards the current state of affairs, market prices always reflect this. On the contrary, when a nation endures political crisis, unemployment and inflation rates are on the rise, this also has an effect on the prices of it’s currency. Sometimes this data is omitted by traders, but it can serve the role of a very important measure for Forex.
The gross domestic product (GDP) is the next most important indicator that is used when in the foreign exchange market. GDP is considered to be the most full and generalized indicator of the economic state of a country. The gross domestic product is used to measure the total price of all products and services that are being produced in a given country. This data is not used solely for forecasting trades in Forex, and is also considered to be a lagging indicator. What this means is that it changes in measure only after a the economy begins to follow a certain trend.
Retail sales is the third economic factor in our list of economic indicators that are commonly used by fx traders. It represents the total of all monetary income in retail stores across the country. Usually, this reflects data not just for one retail store, but for categories of stores all over the country. This economic indicator is considered very reliable and important, as the current model of customer spending will have effect on the rest of the year. This factor is often more important than lagging indicators and gives a more accurate picture of the state of economy of a given country.
Another reliable report in the list of economic indicators is the Industrial Production Index (IPI). This number demonstrates the fluctuations of production volume at factories. This report reviews actual production compared against the potential of the production facilities over a certain period. When a country’s industry employs the maximum of it’s production capacity , this has a strong effect on how it’s currency behaves on the market, and is considered a great condition for traders.
The last of the economic indicators is the Consumer Price Index (CPI). The consumer price index demonstrates how prices of products and services change across 200 categories. This is a clear indication of whether a country is making profits or losing money on its production efforts. The export data about that country is also very important when looking at this index, as certain export categories that are important to this country have a close relationship with how strongly different products produced by this economy behave. A decrease in export volume also provides a significant effect the well being of the economy.
The Forex market is constantly influence by a variety of different factors. The economic indicators above are always part of certain tendencies, which is why it is important to understand what influence each one of them has when trying to forecast market movements. There are many more important news releases and economic indicators out there, so make sure to study how they work in conjunction with each other – this will definitely increase the accuracy of your trading, especially for news and swing traders.