Traders in Forex markets (similar to the stock market) rely on two forms of analysis: fundamental analysis and technical analysis. Technical analysis is used by analyzing indicators and charts, similarly in stocks as in forex. While fundamental analysis is a little bit different – companies have financial statements to analyze while countries have a swath of economic indicators and reports that need to be analyzed.
You have to evaluate the economic situation of the country in order to trade currencies more effectively, and to analyze how much you think a country’s currency is worth. In this article we are going to show you some of the major economic reports that help traders to study the economic situation of a country.
Economic indicators are reports that specify a country’s economic performance in a specific area. These reports are frequently published periodically by private organizations or governmental agencies. Even though there are numerous factors and policies that can affect a country’s performance, the factors that are straightly measurable are included in these economic reports.
Reports are published periodically, so that changes in the economic indicators could be compared to related periods. Economic reports usually have the same effect on currencies that earnings reports or quarterly reports have on companies. Like in most markets, in Forex, if the report diverges from what was expected by analysts or economists to happen, then it can cause big movement in the price of the currency.
Used for fundamental analysis in the forex market, below are some of the major economic indicators and reports. Most of you have probably heard of some of these indicators, like the GDP, because a lot of these also have a considerable effect on equity markets.
GDP is the gross domestic product. It is considered by a lot of people to be the broadest measure of a country’s economic performance. The gross domestic product represents the entire market value of all finished services and goods produced in a country in a certain year. A lot of traders do not focus on the final GDP report, but mostly on 2 reports issued a few months before the final GDP: the preliminary report and the advance GDP report. That is because the final gross domestic product figure is commonly considered a lagging indicator. That means it can’t predict a trend but it can confirm a trend, which is not very useful for traders looking to identify a trend. If you compare it to the stock market, the gross domestic product report is rather similar to the income statement a public company reports the end of a year. Both give traders and investors a sign of the growth that occurred all through the period.
The retail sales are a directly watched report that measures dollar value or the total receipts, of all products sold in retail stores in a given country. The report approximation is the total merchandise sold by taking example data from retailers across the country. Also, it is a timely indicator, because the report’s data is based on the earlier month sales, unlike the gross domestic product report which is a lagging indicator.Full Review