It goes without saying that economic events influence the price movements of Forex trading. As the biggest global market with traders spanning from all the corners of the world, Forex trading is inextricably linked to these macroeconomic events that can drastically affect the value of currency. These economic events can arise and change at any moment and the market reacts immediately to these events. As a trader, it is crucial to be able to anticipate these major events and adjust trading strategies and make informed decisions.
With many different sources of economic news and politics and other possible factors that can affect the market, the information can be overwhelming and difficult to stay on top of. An economic calendar or a Forex calendar therefore is a valuable tool for traders who need to analyse price movements and figure out prime trading positions. An economic calendar can provide information of real-time updates on world events, political developments, and any data releases affecting the economy.
Many forex trading platforms usually have dedicated economic calendars displaying world news, pre-scheduled announcements and events and some offer data analysis of these events as well. Online economic news are also available in sites such as the Financial Times, Bloomberg, FXstreet, etc.
There are certain features that are normally offered by an economic calendar and it is important to understand how it works in order to fully utilize it for trading:
- Time: Calendars display the time and it is important to set the time zone to your location or to the session that you trade in to avoid confusion. The time for pre-scheduled announcements and economic events are also one of the important features of the calendar. High-profile Forex calendars provide real-time reports varying from weekly to daily updates with countdowns of the event release.
- Currency: Countries and their currencies are listed to enable a trader to find out which are affected by the news event. Calendars usually allow a trader to filter their preferred currency and to focus on that data set.
- Impact: Calendars usually have an impact assessment next to the event to show whether there is a low, medium, or high probability of volatility on currency pairs. Economic news relating to monetary policies from the country central banks and political news are usually indicated as high impact and are closely followed by Forex traders as it can change the value of a currency pair within seconds. With this information, a trader can act faster than other traders in the market before the event happens and put protective stops on trades and avoid the chance of slippage.
- Forecast: These are the projection of economic analysts of the possible outcome of the economic release
- Previous: Contains past data of an economic event that can be used to compare with current available figures
- Forecasts: Contain information about what economic analysts and market professionals project to be the outcome and impact of the news event
- Actual: Displays the outcome of the news event
With all these features available, a trader can utilize the economic calendar by configuring it to their trading style and filtering out unnecessary data. They can then use the features by first looking at the impact assessment of the news event and then looking at previous data to compare the figures and having the projected forecasts of the economic analysts as a guide to assess whether there is a market-moving event and then making trading decisions.
Below are several economic indicators that traders should keep an eye out for that can impact the value of currency:
- GDP (Gross Domestic Product): Measures the sum of all goods and services in a country.
- Political events: Elections and Government monetary policies
- CPI (Consumer Price Index): Measurements of the average prices of goods and services for buyers and sellers. Best source of inflation data.
- PMI (Purchasing Manager’s Index): Survey of purchasing managers regarding a particular business sector
- PPI (Producer Price Index)
- Central Bank Rate: Monetary policies made by country’s central banks over raising, retaining, or lowering interest rates
- Employment levels and Retail sales
- Durable Goods Orders: Data about manufacturing activity of durable goods
This is not a comprehensive list of economic events that traders should watch out for and there should be awareness of other events and factors that could affect the direction of price movements.
The use of an economic calendar is an effective tool for traders to manage information and being able to understand and analyse economic events is an important skill of a good trader. There are many available online customizable calendars in the internet to suit any trader’s preference and trading strategy. With high risks at stake in Forex trading, it is imperative to have all the necessary tools for risk aversion and better trading strategies.
Husband I Dad l Friend l CEO & Founder – FX Tech Group Ltd.