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The Forex market is a highly dynamic and complex place. For new traders, it may seem a tad uphill to understand everything that is happening.
However, things are simpler than they look. Yes, economic data is an essential indicator for Forex trading whenever there is not a political upheaval or a crisis. That said, not all data is equally important.
When it comes to economic news, there are critical events any trader must track if they wish to do a highly reliable fundamental analysis.
(1) GDP Data : There is a lot of talk among economic circles about the value of using a nation's gross domestic product as an accurate indicator of growth. However, until a better option is presented, quarterly GDP data is directly correlated to movements in Forex exchange rates. After all, the stronger the economy, the stronger the currency and vice-versa.
(2) NFP Data : If you are a trader in the US, this is one of the most relevant data points you can follow. Nonfarm Payrolls are released the first Friday of each month by the US Bureau Labour of Statistics, and it helps shape decisions made by the US Federal Reserve. Additionally, NFP data has closely followed GDP reports, so it has the added advantage of showing the overall state of the economy on a monthly basis.
(3) CPI Inflation Data : the Consumer Price Index is another invaluable indicator because it shows the average price consumer pay for a predetermined basket of goods. Therefore, positive or negative changes in the CPI reflect potential trends in the economy. Beware when looking at CPI data. It is not uncommon for two data sets to released at the same time; CPI and Core CPI. The difference between them lies in the fact that the Core CPI omits volatile goods. Thus, it is highly recommendable only to follow CPI.
(4) PMI Data : CPI, NFD, GDP, and PMI are all correlated to the overall health of any given currency. When it comes to the Purchasing Manager Index, it indicates the state of any given nation's manufacturing sector. Moreover, central banks look at PMI when considering new monetary policies. That is due to the PMI, just like NFD and CPI, gives policy maker, traders, and analysts the ability to understand better if the economy is heading for a recession or if it is growing.
(5) Fed meetings : The US Federal Reserve is one of the most influential institutions on earth. It does not matter if a Forex trader lives in Australia, Canada or Japan, the Federal Open Market Committee (the gubernatorial board of the US Federal Reserve) will still influence whatever decision the local central bank might take. That is thanks to the fact that the USD is the most used currency on earth, which effectively makes it the world's reserve currency.
Any Forex trader who is willing to do serious fundamental analysis will tune 8 times per year to closely watch the Fed meetings.
(6) Other Central Bank Meetings : Lastly, all Forex traders are subjected to their own nation's central bank. Therefore, Forex traders should also track the Central Bank meetings for each respective currency they trade or intend to trade. Each central bank has a different meeting date and a different schedule. Traders can check the specific dates by looking at the Forex Calendar or visiting the websites of the central banks.
