There are dozens of economic indicators that can impact the forex market, and many traders simply don’t know which news move the market the most and which to dismiss. That’s why we’ve compiled a short list of the most important indicators that all forex traders should follow closely.
The situation in the labor market is probably the most important indicator of all, and employment numbers regularly create a lot of volatility when they’re published. No other indicator reflects the current economic health of a country better than the labor data, and it can also be used to predict the change in the future consumer spending.
Unemployed people tend to postpone large financial decisions, which directly impacts the economy of a country. In fact, consumer spending accounts for more than 60% of the GDP of most developed nations, making it that more important to follow the current employment numbers.
The inflation rate is another important market indicator that forex traders need to follow. It represents the change in prices of goods and services over a specific period of time, and most central banks keep an inflation target which they try to reach with their monetary policy.
A modest inflation rate has many benefits for an economy, as pensions and salaries are regularly adjusted for the current inflation. However, if the inflation numbers get out of control and the country gets hit by a hyperinflation or deflation (extremely high inflation and negative inflation, respectively), the country may experience a fall in economic activity or even an economic recession.
As mentioned earlier for the labor data numbers, personal consumption makes up the majority of the GDP in most developed countries, and retail sales are a key indicator which can be used as a barometer of it.
Retail sales measure the value of sales in the retail sector, and a better-than-expected releases signals strength in the domestic economy and a potential appreciation of the country’s currency. Similarly, weak retail sales may reflect a fall in the economic activity and a depreciation of the domestic currency.
The GDP, or Gross Domestic Product, includes the value of all finished goods and services in an economy during a specific period of time – usually one year. It’s the broadest economic indicator available to forex traders to assess in which direction a country’s economy is heading.
However, as GDP reports are usually published quarterly (with two earlier reports called the advance and preliminary report), forex traders can rely on the other mentioned indicators in this article to get a confident picture of how a country’s economy is performing even before the GDP numbers are published.
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