The Forex market, which continuously operates 24 hours for 5 days in a week, is highly driven by the multiple economic indicators from the major economy. The economic indicators are released by the government or by some private organizations that look deep into the economic performance of the country. Reports generated through such indicators critically examine the economy which indicates whether the country’s economy is on a surge or slump. The economic state of the country and the current events are the most widely used economic indicators while trading Forex markets. Thus, a forex trader has to keep a sharp eye on the economic reforms and regulations to calculate its impact and make substantial profits. When a country booms in production, trade and other economic affairs, its currency value rises; On the contrary, when a country suffers from political imbroglio, unemployment, and inflation, its currency performs poorly in the market. Some of the indicators that serve as a significant instrument to measure the fluctuations of the Forex are as follows:
GROSS DOMESTIC PRODUCT (GDP)
GDP is the most widely used gauge of the overall health of the economy, depicting the condition of the economy in the business cycle. The GDP is the key part which analyses the macroeconomics of the foreign exchange market. The US GDP data is released once in a quarter and even the latest estimate reports are the estimation of the past. Furthermore, the projections are extensively used in the Forex market as a tool in finding whether the US economy is on a positive trend or on a negative trend.
NONFARM PAYROLLS (NFP)
The nonfarm payrolls are released on the first Friday every month by the Bureau of Labor Statistics (BLS). The nonfarm payrolls report has a large effect on the market prices. Historically, the changes in the nonfarm payrolls usually follow the similar pattern as the quarterly GDP changes. Thus, the nonfarm payroll data can be used by a trader as a proxy to the GDP which has the tendency to move the Forex market considerably.
UNEMPLOYMENT RATE
The unemployment rate refers to the percentage of the workforce looking for the work, which offers trader insights into one of the key metrics followed by the Fed. When there is a strong deviation from the expectation, it is likely to cause a huge impact on the Forex market. Historically, the rise in the unemployment rate would lead to the fall in the country’s currency value. Hence, a Forex trader must focus on the unemployment rate and know the state of the economy.
FEDERAL FUNDS RATE
The Federal Open Markets Committee (FOMC) meets eight times in a year and it determines the US monetary policy. The consequences of an FOMC meeting affects the Forex Market. The Forex market is largely affected by the level of interest rates of the two countries and the expectations regarding those interest rate by the traders generally influences the Forex market.
The constant update about the Fed rate is quite essential for the Forex traders as the update in the Fed create a huge impact on the US dollar.
CONSUMER CONFIDENCE INDEX
The consumer confidence index typically depicts the feeling of the consumers. If the consumers feel secure in their jobs and are optimistic about their future economic prospects, then it can be inferred that they are ready for going out and spending. Such optimistic reports tend to make a strong impact on the Forex market. Strong reports usually lead to possible upturn for the economy and this is bullish for the Forex. On the other extreme, weak reports lead to possible upturn for the economy and this is bearish for the Forex market. Moreover, this index is heavily influenced by the labor market.
The Forex market is highly prone to the movements brought by the economic news from the major economies of the world. In order to successfully trade in the Forex market, a trader has to consider the impact of economic indicator along with the release dates of the reports. Moreover, in order to properly keep up-to-date, a trader has to have a trading plan ahead and also have a good quality news feed.