Welcome back, Traders! We hope you are ready for another episode of our Trading Top Ten series! Today, we will take a closer look at Forex News! Let’s see what our Top Ten News to be aware of when trading!
#1 Central Bank Meetings & Speeches
Arguably, the most important & regular news that can affect Forex is Central Bank meetings. It’s up to Central Banks to ensure currency stability and the overall growth of the economy. They meet monthly to do so. Central Banks are an important part of shaping the outlook of the economy, having the power to change interest rates. Some of the most important meetings include the Federal Open Market Committee (FOMC), European Central Bank (ECB), Bank of England (BoE), Reserve Bank of Australia (RBA) or Bank of Japan (BoJ). These meetings result in statement releases. The wording (and changes made) can affect the perceived strength of the currency and impact trading decisions made by the Traders. It is also not uncommon to hear speeches from Central Banks (& other members of Central Bank) which also can impact the currency strength!
Updates regarding Unemployment Rate are released monthly. These are important indicators of how strong the economy of a given country is. It also provides insights into the future decisions on monetary policies that have to address unemployment. The main goal of every economy and the policies implemented is to make the economy strong. This is achieved by having the unemployment rate as close to NAIRU - Non-Accelerating Inflation Rate of Unemployment. NAIRU is believed to be the perfect level of unemployment that provides both low levels of unemployment and does not increase inflation or interest rates.
#3 Nonfarm Payroll (NFP)
US Non-Farm Payroll is probably one of the most important and most recognized Unemployment Rate Report that every Forex trader should watch out for. It is released on the first Friday of every month at 12:30 PM BST. It measures the number of additional jobs that were created in the previous month in some of the key sectors (such as construction or manufacturing). As a result, it provides us with an indicator of the performance of the US economy. As the name suggests, this report does not include jobs that were created in the agriculture sector (as well as private households or non-profit organisations).
#4 Consumer Price Index (CPI)
The Consumer Price Index is a monthly report that measures inflation. It is derived from price changes to the basket of goods and services - a fixed set of products and services (such as groceries, healthcare, transport, etc.) that represent purchasing habits of an average consumer. To put it simply, when the price to purchase the basket increased (when compared to the last period) we experience inflation. On the other hand, if the price decreases, we are seeing deflation.
#5 Purchasing Managers’ Index (PMI)
The Purchasing Manager Index (PMI) is a survey where some key (approx. 500) managers share their perspectives on the business conditions, including employment, inventory, productions or orders. Reading above 50 indicates a sector growth, while readings below 50 indicate a possible recession. It provides traders with a way to better understand the state of the manufacturing activity and can help traders better predict future price movements of the currency involved.
#6 Gross Domestic Product (GDP) Growth Rate
The Gross Domestic Product (GDP) is the total of all value-added goods and services that were created in the economy. It measures the size and overall health of the economy over a period of time (usually on an annual basis). A high GDP growth rate indicates the growth and increased strength of the economy allowing traders to make better decisions when trading.
#7 Elections & Political Events
Elections or any other significant political events that took place in the country may and often do affect currency strength. These events can create very volatile markets when they occur as they generally cause uncertainty for investors and traders around the future direction of the price. The economic outlook of a country may look completely different due to the various political, social fiscal agendas different parties have.
#8 Retail Sales
Monthly Retail Sales reports are another indicator of the strength of the economy and the future GDP growth rate. An increase in the number of Retail Sales usually indicates that the economy is getting stronger. It provides consumers with ample employment opportunities which are considered safe and secure. This in turn leads to increased spending on both durable and non-durable goods. However, at certain times it may also be an early sign of an economy that is slowing down, where consumers are purchasing more goods to stockpile and protect themselves in the future.
#9 Trade Balance
Trade Balance is an indicator that measures the value difference between goods and services that are imported and exported. Countries experience a trade surplus with exports being higher than imports. This usually leads to the appreciation of the currency strength. On the other side countries can experience a trade deficit with imports being higher than exports. This can see their currency value depreciate. Understanding trade balance can help traders predict the future direction of the price as well as provide insights on trends in inflation.
#10 Unplanned Forex News
In today’s society news travel fast and any unexpected news can increase volatility and shake the markets! Some high impact news including
● unexpected key public figures speeches or tweets
● terrorist attacks
● news of any natural disasters
● scientific discoveries, etc.,
are sporadic and unexpected but can slow down or speed up the economy of any country, thus affecting its price on the foreign exchange!
Thanks for being with us today! We hope you enjoyed today lessons and will be more aware of these various news events that can impact your positions! See you next week as we deliver another episode of TradingTopTen tips!