The forex economic calendar is a critical tool for fundamental traders to anticipate and trade proactively in an unpredictable and volatile market. An economic calendar is essential for traders to gain valuable insights into major forex economic events and their potential impact on currency prices. The economic calendar lists major market-moving events such as the release of key economic data, including GDP and US non-farm payroll numbers. While not all market reactions can be predicted, these announcements can present excellent trading opportunities. In this blog, we’ll talk about the forex economic calendar to give you a bigger picture and show you how to use it to help your fundamental analysis, manage risk, and make smart trading decisions.
What Is The Forex Economic Calendar?
A Forex Economic Calendar is a tool that tells you when and how important economic and political events that can affect the financial markets and currency exchange rates are going to happen. A global economic calendar has a list of all the important events for each currency, how they will affect the market, when they will be released, what the market thinks will happen, and what has happened in the past. This gives traders important information about when the news will be released, where it will come from, and how it might affect the markets. Traders and investors use the economic calendar to plan trades and portfolio reallocations and to be alert for chart patterns and indicators that may be affected by these events.
Types Of Economic Events In A Calendar
Economic events can range from interest rate decisions by central banks, to GDP reports and job numbers, to consumer sentiment surveys. These economic events are typically classified as either leading or lagging indicators and are further grouped by their impact on the economy and the volatility they may cause.
Leading Indicators: Leading indicators change prior to large economic adjustments and can be used to predict future trends. An example of a leading indicator is Retail Sales.
Lagging Indicators: Lagging indicators reflect an economy’s performance in the past and changes to these indicators are identifiable only after an economic tendency or pattern has already been formed. An example of a lagging indicator is the Unemployment Rate.
In addition to being grouped by time aspect, economic indicators are also classified based on their impact on the economy and the volatility they may cause. Economic calendar platforms have their own unique grading system for these indicators.
The most significant indicator is a country’s GDP, which measures the total value of all goods and services produced within its borders. Another important indicator is the PMI, which tracks manufacturing activity and is considered highly influential. Additionally, traders closely monitor indicators such as Initial Jobless Claims, Unemployment rate, Consumer Confidence Index, Home sales, and Durable Goods Orders, as they can provide insight into market trends.
Other indicators, such as Housing starts, the Beige Book report, Business Inventories, Factory Orders, Average Hourly Earnings, and Federal Budget Balance, while less significant, can still have an impact on the economy and inflation rates. Overall, understanding the different types of economic indicators and their significance can be valuable in making informed trading decisions.
How To Trade The Economic Calendar For Forex Trading?
In the world of forex trading, experienced traders keep a close eye on future economic events to predict the movement of a particular currency pair. To do this, they use an economic calendar, which provides information on key economic and non-economic indicators, events, and news that may influence the market. The economic calendar is usually arranged by country, name of the indicator, level of importance, current period value, forecast value, and value regarding a previous period.
Traders compare current period figures with those regarding the preceding period and analysts’ estimates for the specific data. By putting these three figures together, traders can determine whether new data disappoints or exceeds expectations, which informs their next move in the market. Economic announcements and political news can introduce change to the direction of a particular currency pair, and the economic calendar enables a trader to be aware of a possible change faster and act more rapidly than other participants in the market.
As you become more knowledgeable about the fundamentals of forex trading, you will be better equipped to move to the next level and gain a deeper understanding of the most important economic data that is released on a daily basis. This comprehensive guide will take you through each closely monitored economic indicator by analysts, providing explanations of how it relates to the bigger picture. Traders can profit from information in advance by projecting the possible direction of a currency pair they are interested in.
To maximize analysis and trading strategy prior to and following the most important releases, traders need to know how to read the forex economic calendar properly. Forex trading based on economic data releases is advocated by fundamental analysis. Factors such as macroeconomic and sectoral statistics, economic indicators, central banks’ statements, and other economic reports have the potential to significantly impact market sentiment, leading to changes in forex rates, commodities, or securities. Traders prefer fundamental analysis over technical analysis as it doesn’t demand a deep understanding of technical indicators. This makes news trading suitable for all investors. The primary tool of fundamental traders is the economic calendar, which is thoroughly examined in this review, highlighting its strengths.
Knowing how to use the economic calendar properly is an important tool for traders who prefer fundamental analysis over technical analysis, as it doesn’t require deep knowledge of technical indicators. Some of the major news that massively impact of the market, which you always need to look out for:
1. The frequency of changes in the federal funds rate by the Fed is between 1 to 3 times a year, which impacts the interest of investors in the US currency. An increase in interest rates leads to the appreciation of the USD value in comparison to other currencies.
2. The monthly US jobs report, also known as nonfarm payrolls, is an essential economic report that affects foreign exchange rates. You can learn about its impact on forex rates and how to make money using nonfarm payrolls.
3. Monthly reports on crude oil production and the number of operating oil rigs have a short-term effect on oil futures. A decline in oil production usually leads to an increase in demand, while a reduction in the number of operating oil rigs results in a decrease in supply. In both cases, oil prices tend to rise.
4. Other important events that have an impact on forex rates include the European Central Bank’s monetary policy decisions, which determine future policies regarding inflation, bond issuance, money supply volumes, interest rates, and deposit rates. Macroeconomic statistics, such as the balance of payments, GDP rate, industrial production, inflation rate, price indexes, and other economic data, also affect the value of the local currency in comparison to the US dollar.
Benefits Of Using An Economic Calendar
Here are some benefits of using an economic calendar:
1. Avoid being caught by surprise: Economic calendars allow traders to be aware of upcoming events that could significantly impact the markets. This way, they can prepare themselves accordingly and avoid being caught off guard by sudden market movements.
2. Helps set trading strategy: An economic calendar can help traders determine the most suitable trading strategy to use based on the scheduled economic events. For instance, if there is major economic data being released, traders can use scalping strategy, while swing trading strategy can be applied if there is no major data.
3. Analyze data: Economic calendars provide a wealth of information that traders can use to understand the trend. By analyzing the data presented in the calendar, traders can identify patterns and make informed trading decisions.
4. Stay informed about national holidays: Economic calendars inform traders about national holidays celebrated in different countries, which can affect market liquidity.
5. Rank fundamental news according to importance: The calendar ranks fundamental news according to their importance, providing an analytical forecast of the report. This helps traders to prioritize their attention to high-impact events.
6. Reflects the level of importance: The level of importance is reflected by different colors in the economic calendar. Green represents not very relevant news, yellow shows medium relevance, and red indicates important information that can cause large movements.
7. Nature of the news: Economic calendars provide a brief description of the news, allowing traders to judge the importance of the event and determine its potential impact on the markets.
8. Evaluate differences in data: Economic calendars provide the forecast statistics and previous results, making it easy for traders to evaluate differences in the data and compare them with the market consensus.
Together with the forecast statistics and previous results, the economic calendar makes it easy to evaluate differences in the data and compare them with the market consensus. With all the given information, the trader can follow the trends in the markets in real time and take advantage of the opportunities presented by trading with the economic calendar.
Trading Economic Calendar – When To Open A Position?
Many traders base their decision to open or close a position on the economic calendar, timing their moves to coincide with scheduled announcements or periods of high trading volume. This is particularly useful for those who specialize in trading the news, as they can anticipate the outcome of an event and position themselves accordingly. If a trader correctly predicts the outcome of a news release, they can open a position before the scheduled event and then close it within hours of the news, potentially making a profit from the resulting market volatility.
However, this volatility can cause great losses as well. That is why, we, at FundedNext, do not suggest news trading on our platform.