World currencies rise or fall based on different events. Forex traders need to keep track of factors from the economic and political realms. These range from national fiscal policies to international relations. Big news influences the global exchange rates. But how can you understand which stories really matter?
Fortunately, you do not have to sift through unstructured data. Check your economic calendar instead. This feature is embedded in most popular trading systems. Here is how to use it.
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How to Use Forex Calendar
This tool condenses the most important information. Forex calendars show releases of economic data once they appear. They also contain a multitude of handy indicators. A rookie may feel puzzled by the sheer number of fundamentals. The most important Forex events are presented in this article. Keep track of these factors to make accurate predictions. Discover how to trade news events Forex market has got, and your profits will grow.
Central Bank Meetings as Forex Events
Central banks have the power to set interest rates. They also play a role in shaping national monetary policies. These meetings are some of the most important economic events Forex world needs to keep abreast of. They provide valuable insights for currency traders.
Generally, a rising interest rate is a bullish signal. It causes an appreciation of the national currency. A decrease in interest rates is interpreted as bearish. It means that the currency is likely to lose value. When the rate stays the same, the market may be either bullish or bearish.
During meetings, Central banks present their vision of the present and future. Focus on economic projections presented at these events. Traders consider both the interest rate and the overall outlook. Here is how this works in practice.
If the conditions are favorable, the interest rate may increase. Therefore, you can expect a stronger currency. In the opposite situation, interest rates and the currency may fall. Here is an example.
The Reserve Bank of New Zealand decided to maintain the same interest rate on May 10, 2018. In theory, the decision was unlikely to affect the New Zealand dollar. After all, the market was already prepared for it. However, something interesting happened.
The official announcement was dovish. The institution raised its inflation target to 2%. This measure accommodated growth in the employment sector, which was unprecedented. As inflation was now expected to grow, this affected the national currency. To understand the consequences, one should know about target inflation.
This is the goal the central bank sets for the year. Then, it adjusts its monetary policy to fit it. So, what happened in New Zealand? The bank announced that inflation should rise. Eventually, the New Zealand dollar depreciated against the US dollar. This was not a minor change. In fact, the fall was significant.
Let’s now turn to economic indicators. These are important, as they constitute Forex trading events. Follow them closely if you want to trade fundamentals. Many technical traders narrow their vision to indicators alone. This approach is one-sided.
Gross Domestic Product (GDP)
This is a crucial indicator of economic health. It covers a broad range of financial activities within a country. GDP is an all-encompassing measure. Importantly, many developed economies use three variations of it.
These are advanced, preliminary, and final releases. An advanced GDP is the most powerful in terms of moving the market. When GDP grows, so does the currency rate. The opposite is also true. As GDP falls, the national currency depreciates. The logic is simple. By looking at GDP projections, you may deduce the most likely direction of your instrument.
Forex Events & Consumer Price Index (CPI)
This index shows the weighted average of prices for a basket of market goods and services. These include food, healthcare, and transportation. Experts calculate price changes for each element. The result is the average figure related to how much consumers spend.
Changes in CPI reflect the dynamics of inflation or deflation. In addition, it reflects changes in the cost of living. By looking at a country’s CPI, you can assess its economic policy. Are the measures taken by the government effective or not?
Two types of indicators appear at the same time. These are CPI and core CPI. The letter calculates prices excluding food and energy. This is because both are quite volatile and therefore less predictable.
CPI data plays an important role for traders. But why? You already know that the interest rate is linked to economic growth. To shape policies, central banks use CPI data, as it shows how much local consumers pay for standard goods.
The central bank will raise its interest rate when the CPI approaches or exceeds the country’s inflation target. As a consequence, the national currency will also gain value. When CPI growth is low, both the interest rate and the currency go down.
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Purchasing Managers’ Index (PMI)
This indicator describes the state of manufacturing within a country. PMI reflects the economic health of the sector overall. Experts use it to assess local business conditions. Analysts, purchasing managers, and executives also focus on PMI when making decisions.
Secondly, PMI is linked to GDP. It can show growth or decline of economic activity in the country. The data is also used by central banks when they formulate monetary policies. Therefore, it is also valuable for FX traders.
What does a falling PMI mean? It shows that the central bank is likely to be dovish. The institution may limit exposure to the local equity markets. Instead, it may focus on equities from countries with higher PMI.
Nonfarm Payrolls (NFP)
The name speaks for itself. NFP measures changes in employment in the United States, with the exception of the farming sector. It is calculated every month.
Most economic activity is connected to consumer spending. Therefore, NFP gives important clues to experts. The higher it is – the stronger the national economy. A decline reflects dangers to economic health. As a result, the US dollar falls.
How many payrolls are registered? Is this number different from predictions? If yes, it will move the national currency. If not, additional information is necessary. Look at the rate of unemployment and the average hourly earnings.
NFP has other uses. It helps experts to evaluate inflation. It is also important for the US Central Bank policy.
You can find a fresh release on the first Friday of every month. These reports cause big changes in the currency market. The American dollar is a part of the most popular and liquid pairs. Therefore, it is important for all traders.
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How to Trade News Events Forex
Major Forex news events affect the currency market. National currencies rise or fall against one another all the time. These movements are not random as they are based on political and economic drivers. Knowledge of the underlying causes helps traders make accurate decisions.
The economic calendar is the main analytical tool for fundamental traders. Use it to stay abreast of economic events. This way, you can foresee trends more easily. GDP, PMI, and other factors can move the market. They will help you anticipate big market swings.
Forex traders should not dismiss fundamentals, even if they prefer technical indicators and price charts. Regardless of your method of analysis, the knowledge of economic indicators is useful. It helps you make accurate predictions for higher profits.