WHAT IS A FOREX CALENDAR AND HOW IS IT USED IN FOREX TRADING?
A Forex economic calendar is essential to predict what economic news events you can expect and anticipate currency changes accordingly.
When trading in the Forex market, it is essential to foresee economic events. These economic events are often published or announced and will immediately influence currency rates. If you know when a certain economic event is going to be published, you are analysing the market thoroughly. Thorough analysis can help you to foresee how a currency rate may develop on a certain date.
Foresight is the reason why it is so important for a Forex trader to follow an economic calendar. The number of events, however, can be overwhelming. There are filtering tools on an economic calendar that make it far easier to keep an eye on the economic events with the highest possible impact for your Forex trades.
What is a Forex calendar?
Forex trades are mainly dependent on economic events. Currency rates are largely influenced when, for example, a central bank announces an interest change, unemployment rates are published, or when consumer trust is analysed. That is why economic development should be monitored closely.
To foresee economic development, a Forex calendar is necessary. When you analyse the market closely, you can largely predict developments on any certain day. With this knowledge, you can foresee a currency rate change and anticipate trades.
A Forex economic calendar, therefore, should be part of the fundamental technical analysis of a dedicated Forex trader. A Forex economic calendar also gives insight into in depth, new tips on how to forecast a Forex calendar, providing you with all the necessary knowledge to execute strategic trades.
What is an economic event?
All events that cause economic developments are classified as economic events. These economic events are recorded in financial statements or other types of announcements.
How to read a Forex calendar
Economic calendars typically provide a short description of the event, but, most importantly, assign a value to each event, “Actual,” “Forecasted,” and “Previous”. The specificity of the calendar allows you to see the timing of the next announcement so you can predict the actual impact of the economic event.
With color-coded – red, orange, and white – labels, the calendar differentiates the impact of economic events, helping you to scan for the most important events for your portfolio.
Because most Forex traders only deal with a certain set of currency pairs, most economic Forex calendars also provide the option to select only the currencies that are relevant for you. In this way, the economic calendar becomes leaner, making it far easier for you to pick out the highly relevant economic events that will impact your trades.
What economic events should you monitor?
Below, you will find ten of the most important economic events that can have a major impact on currency rates:
- GDP Growth Rate
- Consumer Sentiment
- Economic Sentiment
- Personal Consumption Expenditure (PCE)
- Purchasing Managers’ Index (PMI)
- Unemployment Rates
- Inflation Rates
- Business Confidence
- Consumer Confidence
- Retail Sales
A typical economic calendar can have dozens of events daily, so it can be a challenge to keep up with all of them. Most economic calendars label all economic events as low, middle, or high impact. This helps you to distinguish the important economic events you must follow from the ones of which you should be aware.
GDP Growth Rate
The Gross Domestic Product (GDP) Growth Rate indicates how quickly the economy of a certain country is growing. This rate compares the GDP of the last quarter with the previous quarter. A high growth rate can indicate that a country’s currency rate is rising, whereas a declining GDP often means a currency is becoming weaker.
Consumer Sentiment Indicator (CSI)
Consumer sentiment is a statistical rate regarding the health of the economy according to consumers. It is all about people’s feelings toward their own financial health. CSI indicates if consumers are going to invest and buy, or if they expect to sit on their money for a while. A high consumer sentiment will often lead to a higher GDP, hence a stronger currency.
Economic Sentiment Indicator (ESI)
The Economic Sentiment Indicator (ESI) is based on the economic development of five sectors: industry (40%), services (30%), consumers (20%), retail (5%), and construction (5%). The higher the indicator, the stronger the currency.
Personal Consumption Expenditure (PCE)
Personal Consumption Expenditure refers to household expenditures. This indicator is released monthly and supports the reporting of the PCE Price Index. The higher the indicator of this economic event, the strong the currency will be, and vice versa.
Purchasing Managers’ Index (PMI)
The Purchasing Managers’ Index (PMI) is another index that indicates the direction of the economy. The index summarizes the market conditions according to purchasing managers. A high index foresees an economic growth for a country, leading to a stronger currency.
The Unemployment Rate indicates the percentage of the work force that is currently unemployed and searching for employment. Low unemployment leads to higher inflation. A higher rate than expected is negative for a currency, while a lower rate than expected can be interpreted as positive.
Inflation rates impact the rate of currencies. Low inflation typically exhibits a higher currency value, as the purchasing power of consumers increases. Inflation, therefore, is one of the factors that influence a country’s exchange rate.
Business confidence refers to the forward-looking expectations of companies. Business confidence is usually measured by surveys and gives a good indication as to whether companies are going to invest in the next quarter, leading to larger spending. A higher confidence most likely leads to a stronger currency.
Consumer confidence is an important economic factor that indicates the degree of optimism among consumers. Consumers’ view of the overall state of the economy impacts their personal financial situation, and thus their spending in the next period. A higher confidence leads to a higher GDP and a stronger currency.
A change in retail sales has a strong effect on a currency. An increase in retail sales has a positive effect on a currency. A negative retail sales development, on the other hand, is likely to reduce the value of a currency.
In conclusion, it is very important to follow an economic calendar so you can anticipate changes in a currency rate. Make sure to create an overview of only relevant currencies in combination with economic events with high or medium impact. When you narrow your focus in this way, you can pay attention to what really matters.
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