An economic calendar is an indivisible part of forex trading and an integral tool for every forex trader who gathers information on major economic events and announcements such as interest rate decisions, consumer price index, nonfarm payrolls, and gross domestic product (GDP) with the use of the economic calendar. As you know it is not easy to trade in forex in this competitive market, one needs to acquire proper market knowledge, understanding, and experience to tackle the volatility of the forex market. Hence, the forex economic calendar becomes crucial to every trader who is doing currency trading.
In the following guide, we will discuss some best practices around using a forex economic calendar to guide your currency trading.
Use of Economic Calendar for Forex Trading
The main idea behind the use of forex economic calendar is to informed traders and investors about the period of the highest volatility. Many traders use the economic calendar to begin their trading day. Although it is a part of fundamental analysis traders regularly check the released data which impact their trading instruments.
It is one of the most effective ways to keep tabs on global activities and keep an eye on key economic indicators and upcoming events. In forex trading, it plays a major role and gives the information in the released data which has a huge impact on the currency pairs of that country in respect of some other country. These upcoming and past events, directly and indirectly, impact the currencies of respective national economies. Almost every major move takes place near and after to economic release. This is why every forex trader must be aware of the same.
Important Economic Events on the Forex Economic Calendar
While using the forex economic calendar for forex trading, one needs to know which economic indicators to track within the calendar which have a huge impact on the currency instruments and which have not. These economic indicators contain the information of economic events of different countries/regions that give hint to the forex traders in on potential volatility expansions of certain currency pairs.
As you know that each currency illustrates the face of the economic, political, and social stability of a nation. In this relationship, any change in the economic indicators of a country most likely to put an impact on the value of the respective currency.
To better understand this, let’s take an example of INR/USD currency pair which consists of two currencies – Indian Rupee and US Dollar. The INR is the currency that represents India Zone and the USD represents the USA. So, if you are trading in the INR/USD then you will be interested in the economic events that come from the Indian and US Zone. When the volatility appears, trends are likely to emerge which can provide trading opportunities for the informed trader.
Below is a list of major economic events or economic indicators that traders must look out to base trading decisions on. These are the important economic events that are released on a forex economic calendar.
Non-farm payrolls (NFP) data is one of the crucial job data which is a US non-farm payroll monthly release report of employment figures which released by the U.S. Bureau of Labor Statistics. It is one of the major and foremost economic indicators which tell about the employment & jobs in the non-farming industries. In farming industries, hiring is mostly seasonal, thus the non-farm payroll data allow forex traders to focus on the other important sectors such as manufacturing which directly impacts the forex market.
This job data drives momentum in economic growth and the rate of inflation. For instance, if the non-farm payroll is expanding then it is a sign of rising economy and if it is shrinking then so is economy. In the forex market, if the actual level of non-farm payroll is lower than the economists’ estimation then forex traders most likely to sell their U.S. dollars in anticipation of a weakening rupee.
The unemployment rate is also one of the crucial economic data which gauges the state of the economy. It also affects the forex market in a huge way. When people are unemployed their families lose wages and lose their purchasing power. When that happens, it has a direct impact on the country’s GDP which automatically affects the forex market and weakening currency.
Purchasing Managers’ Index (PMI)
Purchasing managers’ index is a vital indicator which tells about what the Central bank is going to do next. It usually releases at the start of the month which is quite useful in getting the indication on corporate earnings. If the PMI economic data is hinting a growing economy then the likelihood is that the currency is going to be bought but if the data indicates a shrinking economy then the currency is going to be sold.
Core Retail Sales
Core retail sales is the economic indicator used by numerous investors and traders which indicates the aggregate retail sales in the United States excluding automobiles and gasoline sales. This is why it is extensively used by the US government in order to calculate the Gross domestic product and consumer price index. This economic data comes on a monthly basis provided by the U.S. Department of Commerce.
Gross Domestic Product (GDP)
Gross domestic product (GDP) is one of the most crucial economic indicators which is considered a Tier 1 report indicating high impact release. The impact of gross domestic product report has a direct impact on the currency market which by the way depends upon a lot of factors. For instance, the United States, Australia, New Zealand, quarterly GDP data tend to affect their respective currencies.
Since GDP is a vital economic indicator which tells the overall health of an economy. It puts an impact on a global scale and affects the currency market on a certain level, depending upon the impact of data released.
Interest Rate Decisions
In monetary policies, the interest rate decisions play a major role. This economic data has a relation to the currency market. Generally, higher interest rates increase the overall value of a country’s currency. This attracts foreign investment which automatically increases the demand of the country’s currency and vice versa.
It is one of the inflation indicators which tells a lot about future inflation and direction of the economy. The higher the inflation, lower the value of a currency. So, in order to measure future inflation, the economists tend to keep an eye on interest rate decisions and follow the forex calendar to timely check the monetary reports.
Final Thoughts: –
Hope, the above important forex economic calendar events you would follow while trading currencies. Each of the economic event likely to bring increased volatility to its specific related currency pairs. If you are interested in other currency pairs then you should look for other monetary policies. For instance, if you are trading Indian Rupee (INR), you should look out for monetary policy that is implemented by the Reserve bank of India (RBI).
Nevertheless, if you have any query or would like to add something up then don’t forget to mention in the comment section below.