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What are the main economic factors that have a big impact on the forex market?

What are the main economic factors that have a big impact on the forex market?
Asked by
Martha Schulz time-icon1 month ago
1 Answer Answer Question

Tom Blackstone
Answered time-icon1 month ago

Economic indicators and reports contain useful statistics published by government agencies, private companies, and non-profit organisations that tend to have a significant effect on the forex market.


The top 11 economic indicators traders can use on the forex market

Here is a look at the economic indicators that tend to have the biggest impact on the market.


1. GDP (Gross Domestic Product)

The Federal Reserve uses GDP data and related economic reports to modify its monetary policy. It is the broadest measure of the overall health of a nation's economy.

The Department of Commerce releases the report quarterly, with any revisions coming within the final week to 10 days of every month at the end of the quarter.

The data is separated into three segments: preliminary estimates, advance estimates, and final numbers.

The image below shows GDP data for the US.

2. Consumer Price Index (CPI)

The CPI includes all sales tax associated with the purchase of goods and services. This indicator is ideal for measuring the inflation rate, and economists examine it thoroughly. Changes in inflation often spur the government to change its monetary policy.

The Department of Labor’s Bureau of Labor Statistics releases the national CPI by calculating an average of all areas collected monthly. They release this data around the second or third week after each measured month.

The image below shows the high impact of the CPI on the forex market.


3. Producer Price Index (PPI)

The PPI data remotely records price changes in all goods-producing sectors, including forestry, agriculture, mining, manufacturing, and fisheries. It also tracks a growing portion of non-goods manufacturing sectors.

This data records and measures prices for goods at three stages of manufacturing: crude products, finished goods, and intermediate goods.

This indicator is also helpful to traders because it is the first inflation data to become available in a given month.

The Department of Labor’s Bureau of Statistics releases the data monthly in the second week of the month following the reporting month.


4. Consumer Confidence Survey

This data is collected from a random sampling of individuals. The questionnaire asks for people’s thoughts about current business conditions, consumer spending, economic growth, labour market, employment status, and financial expectation months into the future. The answers are rated positive, neutral, or negative.

This indicator helps traders identify consumer spending habits, which form a pattern in the currency market. The Conference Board’s Consumer Research Centre publishes the data monthly every last Tuesday.


5. Current Employment Rate (CER)

The Bureau compiles the Employment Report from a survey of 300,000 employees across 600 industries, accounting for one-third of all payroll employees.

This data is broken down into full and part-time workers, and it helps traders determine the well-being of the economy and labour force.

The Department of Labor’s Bureau of Statistics also releases the CER data monthly, generally on the first Friday after the reference month.


6. Trade sales

This data is collected from a random sampling of retail and foodservice industries. Sales are measured and evaluated to represent the nation's three million retail and foodservice firms.

Traders use the data to help monitor consumer spending habits and predict the direction and volume of future spending.

The Department of Commerce Census Bureau (US) releases the data every second week of each month.


7. Trade and manufacturing inventories

This data serves as the primary source of information on the condition of business inventories and business sales. Traders can monitor the growth in business inventories to determine whether transactions are fast or slow.

The US Department of Commerce Census Bureau releases the report monthly, six weeks after the end of the month being studied.


8. Non-Farm Payroll

This data consists of the total number of paid workers in the US, excluding farm employees, government employees, private workers, and workers at non-profit organisations.

Traders use this data to set up trades that take advantage of unexpected changes in the environment.

The US Department of Labour’s Bureau of Statistics releases this data on the first Friday of every month.

The image below shows the Non-Farm Payroll indicator with three bulls, signalling high impact.

9. Housing statistics

Traders use this indicator to identify long-term trends in housing statistics, which ultimately affects the forex market.

The US Department of Commerce Census Bureau releases the data monthly, within two to three weeks of the end of the month in question.


10. The S&P 500 Index

The S&P Index Committee releases the index stocks based on market size, industry group representation, and liquidity.

Traders use it to measure the nation's stock of capital and assess consumer confidence levels and future business.

Standard & Poor’s is responsible for the collation of the S&P 500 Index.


11. The M2 (Money Supply)

Traders use M2 data to forecast cyclical economic recessions and recoveries linked to changes in stock prices.

The US Board of Governors publishes the data weekly (on Thursdays) and monthly (in the second or third week of the month).


The bottom line

To create a more robust fundamental trading setup, traders should combine various economic indicators. The Non-Farm Payrolls, GDP, CPI, and PPI have a greater effect on the market. Traders can make big profits from careful analysis of past data.

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