Economic Announcements are key indicators of the economy that can affect it both in the long term and in the short term. They are published as scheduled by the statistical offices of the respective countries. Nevertheless, traders always follow the state of the US economy and take into account the news in the US. This is due to the factor that the US dollar is the main traded currency. But, in addition to the previously known schedule, unexpected events may occur that cause volatility in the forex market.
Economic announcements, which are part of fundamental factors, are subdivided into four groups: Economic; Political; Force majeure circumstances; Expectations of market participants.
• Economic factors are events that directly affect the states’ economy, as well as its economic policy. Economic factors include: inflation, unemployment, investment; monetary policy of the state, that is, a set of measures taken by the state to regulate economic processes in the country; foreign economic policy of the state, trade relations with other states; the state of the securities market. The state of affairs in the securities market characterizes the volume of investments injected into the state. The more government bonds are purchased, as well as shares and other securities of promising enterprises, the greater the inflow of investments and the stronger the economic state of the state. Which also can be counted as a sign of strongness of the currency. Capital outflow from securities and a weak stock market indicate problems in the state’s economy. And since investors withdraw their funds and do not see prospects for further development, then the exchange rate is weakening.
• Political factors play an important role in the formation of the exchange rate, since political decisions seriously affect the economic well-being of the state. For example, the government’s decision to introduce additional taxes on citizens can lead to discontent within the country and a deterioration in the life of the population. Which, in turn, can lead to quite serious consequences up to a coup and a change of power. But the government’s decision to join a large international organization gives this state advantages in further economic development, which contributes to the strengthening of the currency.
• Force majeure situations are unexpected and unpredictable phenomena, which include natural disasters, catastrophes, terrorist attacks, and wars. They are rare and usually accompanied by market panic. Usually, market participants try to sell the currency of the country in which the force majeure occurred. Such events do not have a long-term impact on the change in the exchange rate, but at the same time, they can cause significant short-term fluctuations.
• Most of the news, as we have already said, is expected, the schedule of their release is published on specialized sites, as well as on the sites of brokerage companies and dealing centers. A certain time before the release of important news, usually a few days, analytical companies, analysts of large funds and banks publish forecasts of their expectations, backing them up with information that was used for the analysis. Major news agencies conduct analyst polls and publish the results. Thus, before the release of a certain news, you can see its forecast value.
In order to benefit from the volatility of the markets, it is important to know which announcements are expected to create most impact and volatility. Below we will list some of the key economic events and their meaning.
Fed or Central Bank announcements: News releases from banking committees, financial authorities such as treasuries, or reserve banks related to interest rates or economic outlooks may indicate certain prospects and long-term trends, so they are always monitored and traded.
Consumer and Producer Price Indices (CPI, PPI): These indices display data on inflation and therefore give an idea of the outlook for changes in interest rates. They also affect short-term and long-term changes in exchange rates.
Unemployment Rate: The unemployment rate can be defined as the percentage of the workforce engaged in an active job search. Unemployment data serves as a lagging predictor during times of recovery. Unemployment is closely related to consumer sentiment as well. The prolonged unemployment cycle is highly harmful to consumer sentiment, as it affects consumer spending and overall economic growth.
Gross Domestic Product (GDP): It is an indicator of how a country’s economy is performing and therefore provides valuable fundamental data for foreign exchange traders. As a rule, the growth of the country’s GDP leads to the strengthening of its currency. Most often, such data are traded rather speculatively, at the moment, meaning that, do not lead to trends, but generate a surge in volatility.
Sales in the primary and secondary real estate market, retail sales and data on unemployment: Important metrics that provide traders and investors with data on the financial health of consumers and the economy of a country. More often they are traded speculatively /, but together with GDP, price indices and Fed statements, they lead to trends.
Speeches by politicians: Speeches and statements of significant people such as heads of state, members of the Federal Reserve Fund or Treasury departments can influence the markets based on their bullish or bearish comments.
Trade balance, balance of payments, current account and debt levels: Figures reflecting economic health, growth or contraction have a long-term impact on the level of supply and demand for a currency.
Use of Economic Calendar
One tool, key to success when trading Forex is the economic calendar. By using the calendar, a trader will get a better understanding why the market is moving in a certain way, while at the same time, he/she will be able to anticipate these moves. While not all of the reactions of the market to these announcements can be predicted they do present excellent trading opportunities.
With good practice and knowledge, by the time an announcement is made, the experienced forex traders will have already predicted the movement of a currency pair.
The economic calendar not only tells what data points to expect each day, but it will also relay the forecasted numbers which are expected by economists.
Of course, predictions are not always 100% accurate. However, following the events and trading in a respective way is an opportunity to benefit. To help plan your schedule, try taking a look at FTD Limited’s Economic Calendar on our trading platform, which apart from the economic events shows their expected rates, which might bring a big opportunity to benefit from.
Consequently, the main thing that traders need to understand is that the Forex market is ultimately driven by economic conditions, which in turn are indicators of the strength of a country’s economy. A country’s economic prospects are the most important condition for the value of its currency. Thus, knowing the factors and indicators to observe will help you compete in such a fast-paced Forex market.
We hope this article has helped you to understand more about the impacts of the economic announcements.
Wishing our readers a good and profitable week!