If you want to start in forex, you need to have a strong grasp of fundamental analysis.
Among fundamental analysis are economic indicators that have a significant impact on the currency pair movements.
Let’s find out what are the top economic indicators you can use for forex trading.
What are economic indicators?
An economic indicator is an element of economic data, often on a macroeconomic scale, that analysts use to analyze present and prospective investment opportunities. These metrics may also be used to assess an economy’s overall health.
Economic indicators are classified or categories. Most of these economic indicators have a set publication schedule, so you can plan and expect to see particular data at specified periods during the month and year.
Here are the top economic indicators you can apply:
Central bank policy
Central banks are in charge of monetary policy and have much power over a country’s economy. As a result, the financial markets tend to pay careful attention to central bankers’ public pronouncements for signals about the future.
Central bank minutes are official announcements that include useful economic analysis that may indicate future policy action.
Employment data
The ultimate determinant of economic success is probably the productivity and wealth of a country’s population. Therefore, labor force, payroll, and unemployment statistics are used to assess how many people are employed and earning more or less money than previously.
These employment stats are closely monitored in industrialized nations, where domestic consumer spending accounts for the majority of revenue.
As a result, a drop frequently follows a drop in employment in consumer expenditure, which may wreak havoc on GDP figures and overall growth expectations.
GDP
The market value of all the products and services generated inside a country over a specific period is the Gross Domestic Product (GDP).
The figure is frequently presented in nominal and real versions, with real GDP accounting for changes in the currency’s value. This indicator is one of the most closely tracked by the financial markets due to its broad scope.
GDP growth shows that a country’s economy is expanding, whereas GDP contraction suggests that the economy is slowing.
CPI
The consumer price index measures changes in the cost of consumer goods and services purchased by households. The index is a statistical estimate based on prices from a representative sample of products collected regularly.
This figure is frequently used as an indicator of inflation, which may positively or negatively impact a country’s currency.
CPI numbers are closely monitored by the forex market for indicators of inflation. Inflationary pressures can lead to higher interest rates and less lending. On the other hand, deflationary pressures can lower interest rates and more lending.
PMI
The Purchasing Managers’ Index tracks purchasing managers’ purchases of goods and services by surveying enterprises monthly. The PMI Manufacturing and PMI Services are the two most important economic indicators.
Because firms cease acquiring raw materials when demand dries up, forex traders keep an eye on PMI Manufacturing and PMI Services as significant leading economic indicators.
It can reveal economic difficulties far earlier than other indicators such as retail sales or consumer spending.
Bottom line
You can use economic indicators to evaluate market possibilities or whole economies. There are a lot of data sources that may assist you in detecting forex pair changes, ranging from gross domestic products (GDPs) to consumer price indices (CPIs).
Content sources and references: https://smartasset.com/investing/indicator-definition , https://www.fxcc.com/major-economic-indicators , https://en.wikipedia.org/wiki/Economic_indicator
