Major economic statistics, like Gross Domestic Product, can seem irrelevant to small businesses and traders, usually because the numbers involved are huge. For instance, the top eight countries by GDP have a combined value of $50tn, with the US and China contributing more than 50% ($35.61tn). Currency traders can find GDP useful though, as a yardstick for inflation.
Leading and Lagging
Of course, on a country scale, decisions involving money tend to use tens or even hundreds of different figures, making an economic calendar a key part of any trader’s toolkit. The TradingView website offers a day-by-day breakdown of important events on many countries’ economic calendars, including metrics relevant to retail, industry, stocks, and bonds.
Let’s take a look at the United States. At the beginning of May, TradingView indicates that the US will release figures related to its manufacturing sector (e.g. the Manufacturing Purchasing Managers Index), as well as construction spending, vehicle sales, and mortgage applications. Economic calendar is therefore useful for gauging leading and lagging indicators – or future and past conditions.
The obvious question to ask is, what kind of things should forex traders look for on an economic calendar? Any figures that hint at inflation are arguably essential to any trader’s success. Inflation has an intimate relationship with a country’s monetary policy, giving insights into interest rates. Look for the Consumer and Producer Price indexes, as well as anything related to the health of the housing and import/export markets.
Consumer Confidence
The OECD’s Consumer Confidence Index is regarded as one of the best leading indicators for forex traders, largely because it serves as a gauge for several economic factors. This Index is a single numerical value derived from the finances and expectations of ordinary people. As an example of the kind of data included in the Index, 19.3% of American people interviewed in March were pessimistic about business conditions going forward.
Everything from employment status and savings can be found in the Consumer Confidence Index. Overall, anything over the 1985 benchmark of 100 is considered healthy. As far as the US is concerned, this is bad news. While the nation had managed to climb over 101 before 2020, the Consumer Confidence Index fell to a low of 96 in 2022. It’s now at 97.
Ultimately, economic calendars help forex traders manage their own (and others) expectations. Another event to look out for is a central bank meeting, which is when organizations such as the Federal Reserve, Bank of England, and European Central Bank hold discussions about interest rates or the need for quantitative easing. Once again, the latter tool is linked to inflation.
It’s worth noting that an economic calendar isn’t a strategy itself, merely a way for forex traders to avoid surprises caused by major announcements. However, knowing which events are likely to produce which outcomes is one of the fundamental aspects of any forex strategy – even if the intention is to ignore current trends. Believe it or not, that kind of trading isn’t all that unusual.
Also Read: 5 Tips to Trade in Derivatives Trading
