What Are The Key Economic Indicators For Forex Analysis?

Simply put, economic indicators are economic statistics published by any country, such as GDP, inflation or unemployment percentage. It helps traders and investors like us to evaluate how economies are now and what they will be like in the future.

The results of published statistics may reinforce our decision to trade in a particular way or influence us to change our investment strategy entirely. As you strive to become a successful Forex trader, it is important to keep an eye on promising economic indicators because the market is easily influenced by statistical data. 

Using these indicators is very common, especially for traders who use fundamental analysis. When analyzing macroeconomics, they can evaluate currencies by looking at these economic indicators.

How Do Economic Indicators Affect Currency Values In Forex Markets?

The vitality of the country’s economy directly affects the capacity utilization rates, profitability and efficiency of companies. Therefore, it also increases the value of the shares.

Contrary developments negatively affect the values of stocks. Recession and recession in the economy cause stock prices to fall and the securities held by investors to decrease.

Fluctuations are observed in the economies of countries from time to time. Those economic fluctuations that are long in duration are called “conjuncture fluctuations”. Such periods of fluctuation can be observed in two basic sections: growth and development, and contraction and decline.

It is important for those who analyze the markets and guide investors to know at what stage the economy is and in what direction it can move, in making the right investment decisions.

 Economics basically examines what, how and for whom societies should produce. The branch of macroeconomics studies the economy as a whole.

In other words, issues such as efficiency in the use of resources in the economy, total production and its growth, inflation, unemployment, total investments and savings, money supply and demand, interest rate, foreign exchange are included in the analysis area of macroeconomics.

Within macroeconomic analyses, the following major economic problems stand out and are addressed. These; These are issues such as an adequate employment level, price stability, inflation problem, economic growth, balance of payments surplus, balanced distribution of income and wealth. Important economic indicators used in economic analysis are national income, investments, employment, inflation and interest rates.

What Are The Most Important Economic Reports For Forex Trаders To Monitor?

Interest rates, as an economic indicator, are frequently used by Forex investors and are a key factor that shows the direction of a country’s economy. Interest rates can have various effects on an economy or the foreign exchange market.

Gross National Product (GNP) is another economic indicator frequently used by investors. GNP is the total services and goods produced in a country, which means total consumer, government and investment expenditures plus total exports and total imports.

GNP has a huge impact on Forex markets, this is due to the public’s perception of GNP as a true indicator of a country’s financial strength.

Retail sales published each month track the dollar value of goods sold in the previous month. This statistic is closely watched by investors because it gives us a good idea of consumer spending power in a country. Every month, both total sales rates and percentage change compared to the previous month are published.

If the unemployment rate is high, this generally indicates a weak economy. This ratio indicates the number of people in the total workforce who are looking for work but are unemployed. Investors use this as a good indicator of whether a country’s economy is strong or weak. 

How Can Traders Analyze Interest Rates And Their Impact On Forex?

There are many ways of analyzing for traders by using interest rates. By keeping interest rates high, businesses and consumers are encouraged to save more money, thus helping to reduce the inflation rate by spending less. This also works the other way around; when a country wants to increase capital and retail sales, it generally reduces interest rates.

It is difficult to state precisely the impact that changes in interest rates have on the economy. A smart investor should also observe the many different influences and also listen to the general consensus when interest rates change.

The increase in rates attracts foreign investors to the country. With a country with a high interest rate, both companies and individuals can shift their investments here to take advantage of the increasing interest rate.

On the one hand, the increase in interest rates increases the cost of borrowing and therefore the purchasing power of the domestic population decreases. The decrease in consumer purchasing power also reduces the value of foreign exchange.

What Are Non-Fаrm Payrolls (NFP) And Their Significance In Forex Analysis?

Non-Farm Employment is a type of statistical data that provides information about people working in all sectors of an economy other than the agricultural sector. These statistics, compiled as the ADP report, enable us to see the health of the labor market and the potential for economic growth in economic analyses.

Nonfarm Payrolls data, for example, shows the change in the number of wage earners (excluding agricultural workers and civil servants) in the United States. The data in question is announced on the first Friday of every month, at approximately 15.30 Turkey time. Increases and decreases in Non-Farm Employment data help shape the US economy and the entire world economy and plan investments.

Reaction of financial markets: Following the publication of the Non-Farm Employment report, imbalance can be observed in financial markets. A positive ADP report can often cause stocks to rise and exchange rates to fluctuate.

According to the results of the ADP Non-Farm Employment report, changes can be seen in dollar and gold prices. Therefore, it is necessary to regularly follow ADP Non-Farm Employment data in order to manage investments correctly. The Nonfarm Payroll report not only shows declines and rises in the dollar, gold and stock market securities.

It also provides statistics on inflation, house prices, gross national product and employment. Therefore, hiring, firing, housing sales and the price of every consumed product may change according to the ADP Non-Farm Employment report.

How Do Inflation And Consumer Price Index (CPI) Affect Forex Decisions?

These two concepts are something that professional forex traders should know and follow. CPI and PPI Inflation data announced by central banks is the data that most clearly reveals the economic situation of a country.

All central banks implement various measures or sanctions to combat inflation in the country, that is, to ensure price stability. Inflation is a rate that generally expresses changes in prices. CPI and PPI data are needed to measure inflation.

The inflation rate is determined according to the CPI PPI data announced by official institutions at the beginning of each month based on the Household Budget Survey. First of all, the consumer price index, CPI, covers the changes in the prices of food and services purchased by consumers within a certain period of time.

Producer price index, PPI, covers the changes in the prices of the products produced by producers within a certain period of time. Household Budget Survey is conducted by official institutions primarily to determine inflation, and it is determined which products the public spends on and how much of these expenditures are in their budgets.

A product basket is created and the products to be considered are listed. However, a manufacturing company does not need to prepare this product basket to determine inflation. Basically you already have this ready-made.

See you in the next post,

Anil UZUN