Forex is a highly fluctuating investment market, with trends and currency prices changing on day-to-day basis. If you are a new entrant to the market, you must be aware of the economic indicators that affect forex trading. In general, economic indicators are the statistics that drive the economy of every country. Needless to say, these statistics have an impact on the prices of worldwide currencies. The following discussion highlights the top 10 economic indicators every forex trader should be aware of.
Gross Domestic Product
One of the most common economic factors affecting forex trading is gross domestic product or GDP. Defined as the total value of all goods and services produced in an economy in the time period of one year, GDP obviously decides the currency price of a country. However, considering the fact that it is an annually measured indicator, it can’t be solely used to forecast currency trading.
Latest Events and Happenings
Though it is not completely an economic indicator, but can play a significant role in bringing changes to an economy. Political disturbances and inflation are two such events that can largely decide the fate of a country’s currency prices. As a forex trader, you must consider evaluating the current events of different countries before selecting the currency you wish to invest in.
Consumer Price Index
Another useful economic indicator is consumer price index or CPI that measures the average change in prices that the consumers of a country pay for the products and services. In general, these consumers include those located in urban areas of major currency economies. The statistics related to this indicator are measured in 200 different categories.
Producer Price Index
This economic indicator measures the average change in the selling prices of products and services. The domestic producers of products and services in the categories like agriculture, manufacturing and utility services are affected by this indicator. In some countries like the USA, the indicator was previously known by the name of wholesale price index.
Purchasing Managers Index
A relatively newer economic indicator is purchasing managers index or PMI. The indicator provides monthly statistics about the manufacturing conditions in an economy. These conditions include export and import statistics, manufacturing orders received, backlogs, inventories, number of workers and so on. These statistics are prepared by interviewing the heads of companies in different sectors.
Employment Cost Index
Though not significantly considered in all the countries, employment cost index or ECI should be an important economic indicator for those involved in forex trading. In simple words, it measures the cost of business labors in different sectors of an economy. The statistics for this indicator are issued quarterly and it can play an important part in forex market fluctuations.
Durable Good Orders
Durable goods in the language of economics consist of cars, mobile phones, jewelry items and other goods that remain useful for at least three years. Investment made in these long-term purchases is another important factor that reflects the condition of an economy. During bad economic times, the purchase of these goods decreases. It is obvious that durable good orders help in determining the economic conditions of manufacturers and economy as a whole.
It is an economic indicator that determines the changes taking place in the overall industrial capacity of a country. In other words, it measures the production being taking place in various factories and other industrial units of an economy. It is easy to understand that an economy showing its full industrial capacity over a period of time attracts more number of forex traders.
Reports that indicate the sales at different retail stores of a country are important economic indicators affecting forex trading. These reports are prepared to show the sales made by retail stores belonging to different categories. It is an important indicator as it determines the spending patterns of consumers.
Overlooked by many, housing starts can also determine the condition of an economy in an important way. A start is defined as the process of starting construction for a new residential building. The fact can’t be denied that housing is an important factor for the growth of an economy and it also brings changes in the interest rates.
As a novice forex trader you may find it difficult to grasp the information related to these economic indicators. You must join a good forex trading course to extend your knowledge about these important aspects of currency trading market.