Major Economic Indicators For Currency Traders
A Tour of the Important Numbers and Indicators That Move the Market
When it comes to the foreign exchange market, the United States dollar is the dominant currency and every other major world currency is measured against it, making up the seven major currency pairs. Because of this, it is important to understand which economic announcements have a significant impact on the value of the dollar, as well as a few of the other major economic indicators.
The labor markets make up a large part of any country's economy, and in the US the labor report that carries the most weight is the Non-farm payroll report. This report is always released on a Friday (usually the first Friday of every month), and there are usually very large market movements right after the report is released at 8:30 New York time. Some traders will sometimes fondly refer to the first Friday of the month as 'Non-Farm Friday' in recognition of the importance that this report can have upon exchange rate values.
The non-farm payroll report is one of the most significant indicators in the US economy, and it measures how many new jobs have been added during the previous month. Most economists speculate that 100,000 to 150,000 new jobs need to be added monthly (to maintain unemployment levels and compensate for an increasing population). Two other less significant labor indicators are the ADP national unemployment report and the initial jobless claims report that is filed every week.
Inflation is another economic statistic that forex traders need to be concerned with, and in the US the major indicators of inflation are the Consumer Price Index (CPI), Personal Consumption Expeniture (PCE) data, and also the Producer Price Index (PPI). Both the CPI and the PCE are closely related: they both measure inflation by weighing the cost of a basket of goods (or a selection of essential products that most people buy frequently) on a month-to-month basis. These are the two main indicators of inflation in the US, with the only main distinction being that the Federal Reserve favors PCE data as its true guage of inflation.
Another major indicator that the US dollar reacts to is the Beige Book, issued by the Federal Reserve two weeks before every Federal Open Market Committee (FOMC) meeting. This indicator is made up of information from the 12 major Federal Reserve branches, with each brach giving a report as to the status of its own geographic region.
Gross Domestic Product is a major indicator for literally every country, as this gives a bigger picture of economic growth by measuring all of the economic activity and total growth over a period of time. And like GDP, Trade Balance is an indicator that affects every country as well, measuring the difference between a country's imports and exports. A nation's currency can weaken if it continually has a trade deficit, meaning that it imports more products than it exports (and on the flip side, a trade surplus, where exports are greater than imports, can strength a nation's currency).
When you are trading the Japanese Yen, two of the main indicators that measure the Japanese economy are the Tankan index and the trade balance. Japan is not as import-oriented as the United States is, so the trade balance for this country is usually closer to a trade surplus (which is beneficial forthe value of the nation's currency). The Tankan index is issued by the Bank of Japan at the start of every quarter, an it measures the sentiment of thousands of different corporations (that is, whether those corporations or companies feel positive or negative about the upcoming quarter.)
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