Fundamental Analysis: Economic Indicators
Economic indicators are used to execute fundamental analysis in Forex Market. These economic indicators point towards the various economic factors in the particular country for which the currency trade would take place. These economic indicators are brought out by different sections of the government as well as private companies.
The market investors analyze these statistics and predict the direction in which the Forex trade market is moving. The various Forex economic indicators are made public at fixed intervals of time. All serious traders which operate in the Forex market follow these indicators. Due to their use in far and wide areas, the Forex economic indicators exert an immense impact on the rates of the currencies. A large number of traders do not make effective use of fundamental analysis as they believe that economic indicators are quite complex. However, this is not true as many easy to understand guides can help you comprehend as well as stay updated with the various Forex economic indicators.
Begin using Forex Economic Indicators
To begin, the first step is to maintain a log of the release dates of all vital Forex economic indicators. You can either maintain a log or subscribe to any of the economic journals. This will help you keep up with the most significant factors of that time. Suppose you are trading in Japanese Yen (JPY), the economic indicator that you refer to must be relevant to that currency type.
Every economic indicator refers to a varied aspect of the economy. This, in turn, should be translated into the forecasted movement of currency price. It is extremely important to understand the aspect to which is the indicator is connected. For example, you should know that PPI is used to measure inflation whereas GDP tells about the growth of a nation’s economy.
The various indicators vary in their importance from time to time as well as according to the currency of the country. For instance, the key economic indicators in some currencies could be inflation indicators while it could be employment rates in others. Economic indicators can be broadly classified into two types, leading economic indicators and lagging economic indicators. Leading indicators are those which change before a Forex trend sets in. On the other hand, lagging indicators are those which change once the economy begins to follow a particular pattern. It is better to make use of both these indicators depending upon the current state of currency.
Chief Forex Economic Indicators
* Gross Domestic Product: The sum total of the goods and services that are produced by both domestic and foreign companies is known as GDP or Gross Domestic Product.
* Purchasing Managers Index: PMI is the monthly index of the manufacturing conditions in a country which includes new orders, inventories, supplier delivery times, employment, import and export orders and prices.
* Industrial Production: It is the measure of industrial capacity, resources available in a country’s factories, utilities and mines and the production change.
* Consumer Price Index: CPI is the measure of average price that is paid for a fixed amount of goods and services by urban consumers.
* Employment Cost Index: ECI is the measure of the jobs in the over 500 industries located in all states of the country.
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