Fundamental Analysis – Economic Indicators – Part 3
The study of a country’s economy is called macroeconomics. Financial policy makers within a country – and also a group of countries in the case of the European Union – look at areas such as price levels, rates of economic growth, gross domestic product, employment and inflation levels. Macroeconomics looks at how a country is performing overall, and whereby policymakers will make adjustments in areas such as interest rates and may use quantitative easing or asset purchasing, should an economy require some extra stimulus.
The areas within an economy broken down into sectors including, exchange rates, interest rates, gross domestic product, government debt., unemployment, balance of trade, gross national product, and rate of inflation. Policy makers, and traders and investors want to see if a country’s economy is growing or in recession. And this can be judged by its income as a whole – or gross domestic product, its spending, debt ratio and its output.
In all there are over 20 divisions where economic indicators are released on a weekly or monthly basis. The most important is gross domestic product. Other significant economic indicators include interest rate decisions, labour and inflation reports. One of the biggest monthly economic releases in the United States is the Non Farm Payrolls, which shows the state of employment outside of the farming sector and has a tendency to cause huge volatility in the Forex market when it is released on the first Friday of each month.
Traders and analysts also keep a close eye on on production indicators including consumer goods, construction and services. As well as commodity output for things such as crude petroleum and natural gas and motor vehicles within manufacturing.
And just as important it is to you and I to control our household economies, markets also keep a keen eye out for our earnings under Wages, our consumer prices under Producer Prices, in areas such as food and energy and Retail Sales, because these tell the markets about our spending habits and if we have more disposable income. Therefore this is also a measure of the health of an economy.
Therefore it is vital that retail traders have a reliable economic calendar to refer to on a daily basis and keep a close eye out for economic data releases pertaining to the particular currency pair which you are trading, or plan to trade, on that particular day. Remember that the non-farm payroll monthly release from the United States can cause an awful lot of volatility in the marketplace and therefore any particular currency pair that you are trading, especially if it is one of the major pairs, should only be traded with extreme caution upon the release of this data.
Please remember that the more you put into learning about the Forex market, and in particular economics, under fundamental analysis, the more you will understand how these markets moves and therefore become a more profitable trader. We have all your educational needs right here at Forex.Academy. And it is all freely available.