The fast-paced and vast Foreign Exchange market can appear daunting to most traders. It may seem like markets are swayed by the slightest news announcement, and certain events unexpectedly cause earthquakes on the market charts.
What newcomers may not know, however, is that most of these events that cause market disruption are not actually random. Rather, there are patterns that can be traced among the market charts and traders can be prepared for anticipated movements by following an Economic Calendar!
Economic Calendars are the primary tool for traders undertaking fundamental analysis. Nowadays, economic calendars are widely available, so you don’t need to spend hours sifting through the daily news announcements. You can even receive Economic Calendar updates directly through your social media news feed by following LonghornFX on Instagram or Facebook!
Trade the news with up to 1:500 leverage at LonghornFX!
In this article, we will take a look at three recurring market events that can have a significant impact on market prices. These are the Gross Domestic Product reports (GDP), Consumer Price Index reports (CPI) and Unemployment Data Reports.
Gross Domestic Product Reports
The Gross Domestic Product (GDP) of a country provides an overall indicator of economic health by measuring the output and production of goods from that country. The concept of GDP was first developed in 1924, by Simon Kuznets, an American economist, statistician and Nobel Prize winner.
There are many different ways of calculating GDP, such as through the ‘Expenditure Approach’ used in the US. This comprises of the following equation:
- Consumption + Investment + Government Spending + (Exports-Imports) = GDP
Traders pay close attention to GDP reports and whether they meet the expected growth outlook put forward by the country’s central bank. Most often, if a nation’s GDP falls below the expected level, the value of the country’s currency will suffer. Conversely, if the GDP is higher than the expected level, the national currency will gain strength.
Consumer Price Index (CPI)
The Consumer Price Index or CPI acts as a measure of economic inflation from a consumer’s perspective. This index calculates changes related to cost of living, based on a typical package of daily costs incurred by individuals including transport, food and energy. The CPI also influences interest rates as banks might decide to increase interest rates to combat rising inflation. Alternatively, interest rates may be dropped if the inflation rates are consistently low, in order to stimulate economic activity.
Traders pay close attention to CPI, particularly the monthly releases by the US and the EU, as this index can determine the strength of a currency and generate significant price movements.
Employment rates play an important role in understanding the state of a country’s economy. Therefore, high unemployment rates and job loss claims are deemed negative as they reflect a struggling economy. On the other hand, the creation of new jobs indicates a well-functioning economy, which in turn has a positive effect on the nation’s currency.
Since unemployment rates are a reflection of economic conditions that have already occurred, they can be considered a ‘lagging’ indicator. Nonetheless, unemployment reports can cause market movements as they may provide insight into upcoming interest rates decisions and monetary policy changes.
Receive Free Economic Calendar Updates on your Social Media Feed
Learning how news events impact the Forex markets can help you be better prepared to enter the markets. Never miss an important event – follow LonghornFX on Instagram and Facebook to receive weekly economic calendar updates directly on your news feed!
With LonghornFX, traders can benefit from low commissions, narrows spreads and swift withdrawals. Trade your favourite FX pairs, crypto, stocks and more with up to 1:500 leverage and a minimum deposit of just $10, only at LonghornFX.