- Everthing about the US economic indicators
- Why you should know USD’s market trend?
- Key is the US’s Employment Statistics
- Which currency pair is affected by US economic indicators?
- Employment statistics and FOMC Policy Rate
- List of major US economic indicators
- US Employment Statistics (First Friday of every month)
- FOMC Policy Rate Announcement (8 times a year for 2 days)
- Fed Chairman’s Assembly Testimony (Semi-Annual)
- GDP (Gross Domestic Product) (Late every month)
- Number of new and used homes sold (At the end of every month)
- ISM Business Index (First business day of every month)
- Consumer Price Index (CPI) (The 15th of every month)
- Producer Price Index (PPI) (The 15th of every month)
- Trade balance (The 20th of every month)
- Economic Leading Index (The 20th of every month)
- How does the market move with US Economic Indicators?
- High Volatility means High Risk
- Follow Economic Calendar to Follow the Market
- Know why the currency value changes
- How to read the exchange rate?
- Forex market shows 2 way prices
- 4 Main Factors that move the Exchange Rate
- Importance of fundamental analysis
Everthing about the US economic indicators
Here is a complete explanation of US economic indicators that even beginners of Forex should remember.
If you can read the price movement of the dollar, you can trade with superiority in Forex trading.
The price movement of the dollar (USD), which is the world’s key currency, affects the price movement of each currency in the world.
We will explain the contents and precautions of US economic indicators that have a great influence on the price movement of the dollar.
Why you should know USD’s market trend?
The center of the world economy is the United States, and the economy of the United States has been booming for a long time.
There was a time when it was said that the economy would deteriorate due to the birth of President Trump, but if you notice it, stock prices continue to rise, and the good economic condition of the United States continues.
The currency of the United States, which is the center of the world economy, is the dollar (USD).
In the foreign exchange market, the dollar affects the currencies of most countries, just as the economies of the world depend on the American economy.
Therefore, when conducting Forex trading, it is essential to know the state of the US economy.
And the most timely information to know the state of the US economy is the US economic indicators released by various institutions.
Economic indicators such as GDP (Gross Domestic Product) and employment statistics are numbers that represent the state of the US economy from each perspective.
And by looking at each index comprehensively, it is possible to get an overview of the US economy.
Key is the US’s Employment Statistics
Foreign exchange market that moves at once with the announcement of indicators
There are many economic indicators that are attracting a lot of attention, and the foreign exchange market moves at once with the announcement of the indicators.
The most notable economic indicator in the United States is employment statistics.
After 2017, the price movement after the announcement of employment statistics has tended to be quieter than before, but even so, when the employment statistics were announced on June 2, 2017, the price movement was close to 1 cent.
Therefore, when conducting Forex trading, it is indispensable to grasp the content and date and time of the index announcement in advance.
Most of the veteran Forex traders experienced the pattern that the price moved at once during trading and recorded a large loss or profit, and it was the announcement of employment statistics when examined later.
Which currency pair is affected by US economic indicators?
The pair affected by US economic indicators is the USD currency pairs.
The dollar is said to be the world’s key currency, and all currency transactions are centered around the dollar.
The currency pair with the symbol “USD” is the dollar straight currency pair.
Therefore, all currency pairs with the USD symbol will be affected when US economic indicators are released.
Even for currency pairs that do not have the USD symbol, in most cases, the currency is exchanged once through USD.
Therefore, the announcement of US economic indicators will be directly and indirectly affecting any currency pairs traded in Forex.
Employment statistics and FOMC Policy Rate
We will descibe the details of US economic indicators later, but first, we will focus on the indicators that are the most important among any others.
Here are the 2 US economic indicators that you should definitely follow.
- Employment statistics
- FOMC policy interest rate announcement
Employment statistics are said to bring a monthly exchange festival, and the market price often moves at once after the announcement.
And we can’t talk about the foreign exchange market without considering the FOMC, which determines the US policy rate, which has a major impact on the world economy.
Since 2017, the price movements in the foreign exchange market at the time of the release of employment statistics have been quieter than before.
However, certain price movements have occurred, and there are many cases where the timing of the release of employment statistics is a turning point in the market.
Regardless of the resulting price movements, both indicators require careful attention to the content of the announcement as well as the date and time of the announcement.
List of major US economic indicators
The major economic indicators of the United States are listed below in order of importance.
1. US Employment Statistics (First Friday of every month)
US Employment Statistics is a statistical data such as the number of employees in the United States excluding the agricultural sector.
In the financial market, this is the most important indicator of the US economy.
Not only the transition of statistical figures but also the discrepancy between the forecast figures and the announced figures is important.
2. FOMC Policy Rate Announcement (8 times a year for 2 days)
USA does not change the interest rates every time, but when interest rate changes are announced, the foreign exchange market will undergo major fluctuations.
Even if there is no change in interest rates, if there is a change in the outlook for the US economy by the FOMC, there are many cases where large exchange rate fluctuations occur.
3. Fed Chairman’s Assembly Testimony (Semi-Annual)
The Fed chair will explain economic trends and financial conditions in the US Congress.
There are few deviations from the content of the press conference after the FOMC and the lectures up to that point, and there are not many surprises.
Therefore, although it is of high importance, it is less noticeable than the employment statistics and FOMC.
However, there are cases where parliamentary testimony is used as a groundbreaking measure when changing interest rates.
4. GDP (Gross Domestic Product) (Late every month)
GDP is a typical economic indicator that shows the economic situation of a nation, and is an indicator that many investors are paying attention to.
If the deviation from the forecast is large, there is a high possibility that a large fluctuation will occur.
Since there are cases where the breaking news value issued earlier is revised later, investors like to pay attention to whether there is a difference between the breaking news value and the revised value.
5. Number of new and used homes sold (At the end of every month)
In the United States, where the population is increasing and there are many young people, investment in housing is a major factor in the economy.
It is possible to grasp the business sentiment of the US housing market from the number of new homes sold and the number of used homes sold, and it is said to be a leading indicator of the US economy.
6. ISM Business Index (First business day of every month)
An index that measures the business sentiment of the manufacturing industry, which has high employment absorption capacity.
In the United States, where more than half of GDP is personal consumption, the manufacturing industry has a limited impact, but because of its employment absorption capacity, it is regarded as a leading indicator of economic change.
7. Consumer Price Index (CPI) (The 15th of every month)
The inflation rate is one of the factors to judge when discussing the policy interest rate at the FOMC.
Consumer Price Index (CPI) is an index that is drawing attention against the backdrop of recent interest rate hikes.
If the Consumer Price Index (CPI) rises higher than expected, inflation concerns will arise and the dollar will tend to sell as interest rates rise at the FOMC.
However, the direction cannot be decided unconditionally because dollar buying will occur due to the interest rate hike.
8. Producer Price Index (PPI) (The 15th of every month)
Similar to the Consumer Price Index (CPI), it is an index that measures inflation trends.
In the United States, where the contribution of personal consumption to GDP is high, CPI is attracting a lot of attention, but PPI also exists as a supply-side.
9. Trade balance (The 20th of every month)
The United States is a country with a chronic trade deficit, and it is an economic indicator that is gaining attention under the Trump administration.
10. Economic Leading Index (The 20th of every month)
Economic Leading Index is a conference report from a private research institution calculated from 10 indicators that are thought to move ahead of the economy.
How does the market move with US Economic Indicators?
There are cases where the market price moves significantly with the announcement of each economic indicator.
The announcement of particularly important indicators tends to make a big move.
When economic indicators are announced, it is necessary to pay attention to the gap between the forecast and the announced figures, in addition to the changes in the announced figures from the past.
If the indicators are better than expected, the dollar tends to be bought as a plus for the US economy.
On the other hand, if it is worse than expected, the dollar tends to be sold due to the uncertain future of the US economy.
However, if the discrepancy between the forecast and the actual number is judged to be good or bad, and the dollar is bought or sold, a large loss may be recorded.
Although the same trend exists, the dollar is bought a little after the release of good economic indicators and then plunges after rising.
Despite the announcement of worsened numbers, the market could judge that the material is exhausted and the dollar is bought at a stretch and rises, which also happens often.
In addition, it can be said that the announcement of economic indicators often triggers price movements.
Although there is a big tendency for dollars to be bought and sold by comparing the forecast with the actual figures, it is the timing when various speculations of market participants collide when the data is announced.
Therefore, there are many aspects in which the final direction of the market will not be known until that time.
In order to predict the direction of the market after the announcement of economic indicators, in addition to comparing the forecast figures with the actual figures, whether or not the rate has increased until the announcement of the indicators, trends in peripheral markets such as bond and commodity markets, etc.
It is necessary to make a comprehensive judgment based on various factors.
It must be said that it is not easy to predict the direction of the market after the announcement of the index simply by comparing the preliminary forecast and the actual figures.
High Volatility means High Risk
Trading before and after the release of economic indicators is risky.
Market participants take a variety of actions, as the release of economic indicators often results in large price movements.
There are various types of investors, such as investors who lose their positions before the index is announced, investors who invest money at once after seeing the result of the index announcement, and investors who set up a contrarian against price movements after the index is announced.
Therefore, the market price moves very unstably before and after the announcement of the data.
It can be said that there are many cases in which complex price movements are shown, such as a slight increase in the direction in which it was expected to increase and then a sudden reversal.
Trades before and after the release of economic indicators are high-risk trades.
There is no problem if you enter the market with a view of the market based on the announcement of the indicators, but if you enter without knowing the existence of the announcement of economic indicators, you are more likely to record a loss.
At the beginner’s stage of trading, the correct answer is that you do not have a position before and after the announcement of the most important economic indicators.
You want to check the date and time of the announcement of economic indicators in advance and avoid trading during high-risk hours.
Follow Economic Calendar to Follow the Market
Suppressing important economic indicators makes it easier to trade.
Just because an economic indicator is released, it is not necessary to avoid trading before and after all the indicators are released.
In the case of indicators that are actually low in attention, it can be said that there are many cases where the market price does not react even after the announcement.
However, there are cases where the market price of indicators that investors around the world are paying attention to, such as employment statistics and FOMC interest rate announcements, moves at once after the indicators are announced.
In particular, if there is a large gap between the forecast and the actual figures, the market will move at once.
At the beginner’s stage, you can reduce unnecessary losses by first making sure that you do not have a position before and after the announcement of important indicators.
Why don’t you start by always following the economic indicators that are announced every day before trading?
Just doing that will help reduce unnecessary losses.
On the other hand, if you can’t even do that, it’s difficult to keep winning in Forex.
By studying continuously, you can improve the accuracy of trading by conducting market analysis based on the announcement of economic indicators.
Economic indicators are an important point for not losing or winning in Forex trading, as a target to avoid for beginners and a target to use price movements for intermediate and above.
When you start Forex trading with a dollar straight currency pair that involves the dollar, you want to understand the US economic indicators that are scheduled to be announced before you start trading.
Know why the currency value changes
How to read Forex rates is important, and you should know the factors that move exchange rates and the importance of fundamentals.
FX (Foreign Exchange Margin Trading) refers to transactions targeting exchange rates, but how is this exchange rate calculated in the first place and why does it work?
Currency is one whose value is guaranteed by the issuing government.
However, unlike stock investment, increasing the value of the USD does not always benefit the country.
In the world of stocks, a rise in stock prices can be regarded as an increase in the value of a company.
However, in the case of an exporting country like the USA, a stronger USD does not always have a positive effect on the country.
Then, it is not always the case that the USA should have a weaker USD.
The depreciation of the USD has the disadvantage of depreciation of the USD, and it may be beneficial for the nation to correct the excessive depreciation of the USD and make it stronger.
The exchange rate moves due to various factors.
Trading without looking at the factors that drive those exchange rates can be disappointing and can lead to painful losses.
When doing Forex trading, let’s thoroughly learn the factors that move the exchange rate and how to view the rate.
How to read the exchange rate?
It’s an exchange rate that you usually look at casually, but how do you look at it?
For example, when the rate of 1 euro = 1 dollar becomes 1.10 dollars, the number is rising, so at first glance, it seems that the value of the dollar is high.
But the opposite is true, as the value of the dollar is declining against the euro, which means it is depreciating.
From the dollar’s point of view, the strong dollar seems to be a special move.
But what about the euro? The shift in the rate from 1 euro = 1 dollar to 1 euro = 1.10 dollars means that from the euro’s point of view, the value of the euro has increased against the dollar, that is, the euro has strengthened.
From the euro’s point of view, the value is rising, so it seems very natural for the numbers to rise.
In this way, the appearance of foreign exchange charts differs depending on the position of the currency.
When trading on Forex, you should make a clear distinction and understand in what direction the current exchange rate is moving and what it means.
Forex market shows 2 way prices
When trading in Forex, two types of rates are displayed for one currency pair.
From the perspective of these two numbers, Bid means sell and Ask means buy.
If you make a mistake in this view, you will end up holding the opposite position, so be sure not to make a mistake.
Basically, these two numbers are higher in Ask than in Bid.
The difference between Bid and Ask depends on the spread width of each Forex company.
The larger the spread width of the currency pair, the higher the transaction cost per transaction, so if you want to trade at the lowest possible cost, it is better to choose a Forex company with a narrow spread width.
The exchange rate is essentially the exchange rate of currencies between the two countries.
For example, in the case of EUR/USD, Bid is the price of the dollar it costs to sell 1 euro and Ask is the price of the dollar it costs to buy 1 euro.
In other words, if you think the dollar will weaken, place a buy order with Ask, and if you think the dollar will strengthen, place a sell order with Bid.
4 Main Factors that move the Exchange Rate
The exchange rate is determined by the balance between supply and demand for each currency.
The appreciation of the USD does not mean that the value of the USD will increase.
If you want USD and buy a lot of USD, the weight of the USD will be stronger than other currencies, and as a result, the USD will strengthen, and conversely, if a lot of USD is sold, the USD will depreciate.
When factors that affect the balance between supply and demand occur, the exchange rate fluctuates significantly.
There are many types of factors that move the exchange rate, but they can be broadly classified into four factors: seasonal factors, speculative factors, geopolitical factors, and technical factors.
1. Seasonal factors
Seasonal factors do not mean the four seasons.
The seasonal factors of the economy are, in short, the factors that affect the economy of each country, such as GDP.
Since GDP is a unique indicator of a country’s economy, the exchange rate tends to fluctuate significantly when GDP is announced.
If the results of economic indicators such as GDP are good, the currency will be bought from expectations.
On the other hand, if negative factors such as worsening unemployment, which indicate a bad economy in a country, occur, the currency will be sold and its value will decline.
Some investors analyze this economic indicator to predict future rate movements.
Analyzing rates using these seasonal factors as hints is called fundamentals.
Speaking of economic indicators that can be used as a reference for fundamentals, in addition to GDP, policy interest rates, price levels, and the balance of payments are also indicators that affect exchange rate movements.
Information on policy rates and unemployment, not just GDP, is usually published on a fixed schedule.
For example, if the unemployment rate in the United States is announced, you can check the economic calendar on the first Friday of every month to know when important economic indicators will be announced in advance.
Whether you do a fundamental analysis or not, the day when important economic indicators are released is always prone to market instability, so you need to be careful.
For that reason, always check the timing of the announcement of economic indicators that have a large impact on the market.
2. Speculative factors
In today’s world where globalization is commonplace, it is not uncommon for companies to do business abroad.
However, not all companies and organizations trade forex in order to do business overseas.
Some so-called speculators, such as hedge funds and institutional investors, also participate in foreign exchange transactions.
In contrast to market participants called actual demand, market participants called speculators can sometimes make short-term profits by investing large amounts of money.
Unlike individual traders, some of these speculative funds and institutional investors have the financial resources to influence the exchange rate.
In the world of Forex, moving only 10 cents can be a big profit or loss.
The exchange rates that speculators can move are not very large, but they are still large enough to generate margins in the short term.
Unlike seasonal factors, which have a clear schedule, it is difficult to obtain information on when speculative factors will occur, so it is necessary to be alert to the movements of hedge funds and institutional investors in real-time.
3. Geopolitical factors
Exchange rates can sometimes fluctuate due to local political conditions, incidents, natural disasters, such as terrorism, conflicts, coups, and disasters.
In the past, when something big happened, the US dollar was often bought because of an emergency dollar buying, and the value was high, but after the 9/11 terrorist attacks, even the United States is not always safe.
Perhaps because the recognition has spread around the world, Japanese yen is often bought in the event of an emergency.
Perhaps this emergency Japanese yen buying is a rather emotional factor, and even if something that raises geopolitical risk occurs in Japan, the perception of an emergency Japanese yen buying is widespread and biased.
Perhaps because of this, it would be better to sell the yen, but for some reason the yen is bought and the yen may strengthen.
When geopolitical risk increases, exchange rates can be quite hectic and hysterical.
In the event of an emergency, it is advisable to trade forex carefully, as things do not always follow the rules.
If you want to avoid danger as much as possible, it is safe to refrain from Forex trading in the event of an emergency.
4. Technical factors
In this era of the development of the Internet, people all over the world can check charts that have exactly the same shape on the screen of a personal computer, even if they are on the other side of the globe.
If everyone is looking at the same chart at the same time, the movement of the chart itself can sometimes affect the exchange rate.
Technical analysis is often presented in contrast to fundamental analysis.
For beginners, we recommend technical analysis, which makes judgments based only on the chart status in the short term, rather than fundamental analysis, which involves trading in the medium to long term.
For example, suppose that there was a support line near 100 JPY to the USD, but the rate suddenly dropped to 99.99 JPY to the USD.
Investors around the world will then decide that they have finally broken the support line and will place more sell orders in USD/JPY to gain this momentum.
Then, the exchange rate may move more and more as the behavior becomes a trigger to increase the momentum of the downtrend.
Thus, a sell can call for more sells, and a buy can call for more buys.
For that reason, if you want to trade in a time zone when foreign exchange fluctuations are likely to be as large as possible when trading Forex, we recommend a time zone where investors around the world can easily participate in foreign exchange trading.
For example, the time when the New York market opens is a time when it is easy for people all over the world to check the exchange rate all at once, from Tokyo to London to investors in New York.
The more market participants you have, the more likely you are to have technical factors.
On the other hand, when foreign investors are absent from work, such as Christmas and Easter, the exchange rate will not move much, probably because the number of market participants is lesser.
It may be better to refrain from investing during this period, as the time when the world enters consecutive holidays is often not a big profit even if you trade Forex.
Importance of fundamental analysis
Analyzing why the exchange rate moves and the cause will make it easier to read future exchange rate movements.
For that reason, fundamental analysis is more effective and useful for long-term investors who will trade over the long span of the next few months to a year.
However, economic indicators do not accurately grasp the real economy.
If anything, it’s slow.
That’s because it takes time to research and get results, whether it’s unemployment or GDP.
For example, the plunge in the pound sterling due to the Brexit shock (British shock) was caused by the withdrawal from the EU.
It has been said that this is possible since around 2015, when immigrants were accepted in earnest, but it actually happened in June 2016.
So while the economy may have been good at the time of the survey, it may have deteriorated by the time it was announced.
However, even if the real economy is deteriorating, if the published data shows a boom, the exchange rate may fluctuate accordingly.
If you trust the data and make an investment in the belief that the economy will continue to improve, you may incur losses when the next economic indicator is released.
Therefore, when conducting fundamental analysis, it is necessary to check whether there is any discrepancy between the published data and the real economy.
So, isn’t fundamentals analysis relevant to short-term investors?
That’s because when important economic indicators are released, they can behave as if they are ignoring previous trends.
Relying solely on technical analysis and investing can result in significant losses in the event of a catastrophic event.
However, if you grasp the timing of GDP, unemployment rate, and policy interest rate announcement in advance, you will be able to grasp the time zone when the market price changes drastically in advance, and you will be able to respond to sudden situations.
Learning about the factors that move the exchange rate will be very useful for Forex trading as it will make it easier to predict when the rate will start moving.