While most of the forex traders use technical strategies like price action and indicators to analyse the forex market before entering positions, there are still many others who apply news events when trading a currency pair. This strategy is referred to as fundamental analysis. The application of news events isn’t a skill that is inherent, and is mostly practiced by trading experts with vast experience in the forex market and the financial sector in general.
While sudden political and economic occurrences like Greece’s debt crisis and the UK’s exit from the European Union can cause the forex market to become highly volatile, there are several more scheduled economic events that have the same tendency to create such volatility and lead to a surge or a reversal in market direction.
Many day traders working for financial institutions and hedge brokers rely very much on economic news updates to make informed decisions on their trade. Applying fundamental analysis to the forex market trading isn’t just about listening to the news and placing a trade order, the trader must first discern the ramification of the economic news that has been released before predicting the impact it will have on a currency pair. So what this basically means is that the accumulation of traders’ bias regarding a news event still ends up deciding the direction of the market and not the economic news itself.
There are several important scheduled events that decide the fate of different currency pairs, and their importance is dependent on the effect that they produce in the market.
The FOMC Meeting
The Federal Open Market Committee meeting is a monthly gathering of high ranking staffs of the Federal Reserve Board where a prognosis of the US’s fiscal and economical situation is conducted. Very important decisions may be taken during this meeting, which will certainly lead to market volatility and a surge in the movement of a currency pair. Being a dollar based economic event, it mostly affects currency pairs that feature the greenback.
Non-Farm Payroll (NFP)
This is another monthly data release that affects the forex market greatly. Like the name subtly suggests, it is the number of individuals that are employed in a particular time-period. It, however, doesn’t include farm jobs, self employed persons, and military and security agencies. It is usually released on the first Friday of every month by the U.S. Bureau of Labour Statistics, and impacts all currency pairs with the greenback.
U.S unemployment rate
Released along with the NFP figures by the Bureau of Labour Statistics, it measures the percentage amount of the country’s workforce yet to be employed. It is important because of the relationship between unemployment and consumer’s spending power; hence, a poor unemployment rate figure usually spells doom for the dollar in the market.
U.S. jobless claims
This is a report that discloses the number of individuals requesting for unemployment benefits. Released together with the other two job related data, it reinforces a trader’s bias on the direction of the market. A large number of filed jobless claims basically suggest that the unemployment rate is high and this results in the fall of the dollar.
U.S Crude oil inventories
This is an economic update that provides information on the oil market, and the demand and supply dynamics. Because of the peculiarity of crude oil, its price most often reacts spontaneously to a change in the quantity of the product in the inventories. If the inventories are low on oil, it is most likely going to lead to an increase in the demand for crude oil, which raises its price. Oil and the dollar both respond to each in other in perfect synergy, with a drop in oil prices very likely to boost the strength of the dollar.
OPEC monthly report
This is an overall outlook of global oil production, which is certain to impact the price of oil. Its effect on the forex market depends on the dynamics of the commodity’s relationship with the dollar during the period of the report’s release.
U.S. Producer Price Index
This is a measure of the price of products and goods sold by manufacturers within a particular period (usually a month). It functions as an effective indicator for inflation because of its relationship with Consumer Price Index; and a strong figure usually means an increase in the strength of the dollar.
U.S. Core Producer Price Index
A variation of the PPI, it assists in measuring the price change of goods and services that are offered by producers.
U.S. Consumer Price Index
This is a parameter that measures the price change of several goods and services consumed by the public. Goods and services that are measured to give the CPI figure include energy, food, clothing, housing, medical care, education etc. The CPI can be described as the pulse of the economy because it showcases the wellbeing of individuals living in the country. The U.S CPI is a very strong factor controlling the strength of the dollar and is used to trade currency pairs that feature the greenback.
U.S. Gross Domestic Product report
This is one of the principle indicators for America’s economic well being, and its release is of tremendous importance to the long term direction of the currency market. A measure of the combined value of products (both goods and services) produced within America; it has a very strong effect on the direction of most financial markets and the greenback.
United States Total Vehicle Sales release
A parameter that measures the number of new vehicles that was sold within a given period of time, it helps in gauging the spending power of American citizens. It can be regarded as a less impactful variant of the CPI as its effect on the forex market may at times be negligible. A strong data, however, usually proffers a rise in the value of the dollar.
U.S. Consumer Confidence Index
This parameter basically gauges the confidence of buyers and consumers on the economic outlook of the country. It is a primary indicator that can impact the strength of the dollar on its release. A high figure usually leads to a surge in the purchase of the green back.
U.S. Trade Balance
The US Trade balance is a very important data that discloses the difference in figures of the country’s export and import activities. It is the parameter that measures the income generation capacity of the country via its trade value with other trading partners. A positive trade balance usually bodes well for the strength of the dollar.
U.S. Industrial Production data
This data is released to give a measure of the production output from manufacturing establishments, utilities, and mines. A higher value usually leads to a rise in the value of the dollar, while a lower value impacts the dollar’s strength negatively.
U.S. Retail Sales
The U.S retail sales data is a very important indicator for measuring the country’s consumer spending. It gauges the total sales at the country’s retail level, and discloses the figure to ascertain the change in value. A high retail sales value usually leads to the rise of the greenback.
UK Interest Rate Decision
This is a very important event in the forex calendar, especially for traders that deal with the British Pound. It involves members of the BOE’S (Bank of England) monetary policy committee voting on whether to increase or decrease interest rate value. An increase in interest rate usually bodes well for the GBP.
UK Producer Price Index
The UK PPI discloses the change in the value of raw materials and goods procured by manufacturing entities within a set period. An important indicator for CPI, its release usually affects forex currency pairs that feature the GBP.
UK Consumer Price Index
Just like the CPI data release for the US, this measures the price change of several goods and services from the viewpoint of the consumer. An increase in its value also strengthens the Pound and it’s one of the data releases that strongly affect the “Cable” (GBP/USD) pair.
UK Gross Domestic Product
The same as that of the US, its value is very important to the movement of currency pairs that feature the GBP. A very strong data usually leads to the strengthening of the GBP.
UK Industrial Production data
It is a data that gauges the value of production output from manufacturing industries and the mining sector. It not only reveals the production capacity of the country but also serves as an indicator for its economic outlook. A high value positively affects the strength of the GBP.
UK Unemployment Rate Release
Just like the US’s unemployment rate data, this reveals the population of the UK’s work force that are unemployed within a given period of time. It affects the GBP in the same way that the US’s rate affects the Dollar.
UK Trade Balance
Similar to the US’s trade balance, it calculates the difference in value of the country’s export and import figures.
UK Manufacturing Production data
This has a close relationship with the Industrial Production Data because it constitutes about 80% of that data. Though it is similarly calculated, it only dwells on the output value of manufacturers. It also has the same effect on the GBP in the forex market.
UK Retail Sales
Same as the US retail sales with the same effect on the GBP.
Nationwide Housing Price Index
This is a very important release for fundamental traders that focus on GBP pairs, because the UK housing prices tend to affect the overall outlook of the country’s economy. It measures the price of Nationwide backed mortgage homes and denotes the inflation value if there is one. A higher value usually leads to the strengthening of the GBP in the forex market.
UK Retail Price Index
This index measures the change in the retail price of goods and services that are consumed by the public. It is different from CPI because it is only applied for the products that are consumed in households. It, however, has the same effect on the value of the GBP.
Japan Interest Rate Decision
Like the interest rate decision in other countries, it is capable of having a profound effect on the value of the Japanese Yen, and its release usually leads to volatility in currency pairs that feature the Yen.
Japan Producer Price Index
Like the PPI of other countries affects the strength of their currencies, this also affects the value of the Yen.
Japan Consumer Price Index
It is similar to the PPI of the UK and US and affects the value of the Yen in the forex market.
Japan Gross Domestic Product
One of Japan’s most important economic news releases, it analyses the overall health of the country’s economy. A strong data usually bodes well for the fate of the Yen in the forex market
Japan Industrial Production data
The industrial production data of the Asian country is a very important news event that is also responsible for volatility among Yen pairs in the currency market. A high figure most often leads to the strengthening of Yen.
Japan Unemployment Rate Release
It is just as important as the unemployment rate releases in UK and the US. It affects the value of the Yen and is also capable of producing rapid volatility in the market.
Japan Trade Balance
This has an even greater implication in the forex market because of Japan’s status as a robust exporting nature. A negative trade balance data, which implies weakened export figures, is sure to cause the fall of the Yen.
Japan Retail Sales
It is similar to the retail sales parameter used in the US and the UK, and influences the strength of the Yen in the forex market.
Japan Machinery Orders
This is a vital economic news release because of the importance of Japan’s buoyant manufacturing sector. This data basically links the number of machineries being purchased by manufacturing firms in Japan to the productivity of the manufacturing sector. A high figure usually leads to the strengthening of the Yen.
Japan Inflation Rate
Keeping inflation at a steady rate remains the priority of the country’s central bank, and any instability in the rate usually leads to the weakening of the Yen. It should be noted, however, that if inflation figures are too strong, it could lead to the unpleasant strengthening of the Yen, which in turn reduces export figures.
EU Gross Domestic Product
This is the total GDP of the whole Euro region, and affects the value of currency pairs that feature the Euro.
Germany Gross Domestic Product
With Germany being the economic power house of the Euro zone, the economic health of the country alone plays a pivotal role in the outlook of the Euro zone. A strong GDP from the country will definitely lead to a rise in the value of the Euro
EU Inflation Rate
It is an average of the inflation rates across the EU zone. A strong figure leads to the rise of the Euro.
EU Unemployment Rate
This calculates the average unemployment rate across the whole Euro zone, and certainly has an impact on the strength of the Euro in the forex market.