The forex market is truly international, it is a global marketplace. Traders are buying and selling currencies from many different places around the globe, making it the largest financial market with trillions of dollars worth of transactions happening each day. As forex markets are global, it stands to reason that they are impacted by global economic and political events.
It can be extremely useful to use an economic calendar to know when these key events occur. Vantage FX provides its clients with a comprehensive economic calendar informing what events are happening, at what time and the level of importance.
Macroeconomic factors are the main driving forces behind forex movements. Economic releases influence a traders’ decisions impacting on their traders and as a result determine the movement of the forex market.
The economic health of a particular country is a hugely important influencing factor when determining the value of that country’s currency. A strong economy will generally have a strong highly valued currency, whilst a weak economy will usually have a weaker currency. Traders can assess the strength of an economy through economic data released across the month or quarter.
Gross Domestic Product
Perhaps the most obvious economic indicator to assess the strength of an economy is the Gross domestic product or the GDP. It is comprised of the total output of goods and services that are produced within an economy. It is considered the baseline measure for economic strength and performance.
The US and China are considered the two economies with the highest GDP, China often reports economic growth in the region of 6%-7% whilst the US regularly reports GDP of 2% -3%. Other economies with solid robust GDP’s include Japan and Germany.
The level of inflation within an economy is also extremely important in determining the value of a currency. When a country has high or increasing inflation the central bank will often look to raise interest rates. The prospect of higher interest rates attracts more foreign investment into that currency, lifting the demand for the currency and therefore its value. If inflation is low or falling, the central bank is less likely to tighten monetary policy, making the currency less attractive. As traders sell out of the less attractive currency its value decreases.
These are just two of the main indicators each month to look out for no matter which currency pair you are trading. The GDP and inflation reading for your currency pair will almost certainly have some impact t on the price, even if small or short lived. There are many other high impacting releases which can also impact the value of a country’s currency. These include manufacturing data, retail sales and employment levels to mention a few.
Always take care when trading around high impacting releases as these can cause big swings in currency pairs in a very short space of time. You may decide that trading economic releases is something you would prefer to avoid. Either way use your Vantage FX economic calendar to plan your trading so that there are no nasty surprises.