Best Forex Trading Indicators – Trading manual part 13

Fundamentals Explained

So, now it's time to get you a clearer view on fundamentals in Forex. What they are,
what they do and how they can influence your trading. Things as Interest rates,
Employment reports and the inflation indicators all fall into the realm of
fundamentals. As a Forex trader, checking all of those certain news out comes, will
become part of your daily routine. Fundamentals are a vital aspect on not only the
Forex market, but also any other financial market like the stock market. Financial
markets simply follow economic numbers!

‘All of those different economic indicators can have a direct — and to some degree
predictable — effect on the value of a nation's currency in the Forex market.

Given the impact these indicators can have on exchange rates; it is important to
know upfront when they are due for releases. It is also likely that exchange rates
spreads will widen during the time leading up to the release of an important indicator
, and this could add considerably to the cost of your trade.

Therefore, you should regularly check the economic calendar before entering or
closing any trades. We personally strongly advise you to make this a part of your daily
trading routine.

So, let us explain you what all those economic indicators are, and how they affect the
currency pairs.

Economic indicators

• Gross Domestic Product

A strong GDP result indicate a healthy economy,
suggesting that the currency may increase in value compared to currencies for
countries with weaker economies. Basically a positive GDP encourages bullish price
action where a negative GDP encourages bearish price action.

• Consumer Price Index 

A CPI that continues to trend upwards month over month
could be a signal that inflation is eroding buying power to the point that the Central
Bank will raise interest rates to curb spending. An increase in interest rates may lead
to an increase in demand for the currency as the potential for a higher return makes
the currency more attractive for traders and investors. In common, a positive CPl
encourages bullish price action, where a negative CPI encourages bearish price
action.

• Employment Data 

If employment trends downwards, the economy could weaken
as fewer people will have the means to purchase non-essential goods. If employment
is increasing, then spending is likewise expected to increase, and a stronger economy
often leads to a stronger currency. Positive employment data will often result in
bullish price action, while negative employment data often results in bearish price
action!

• Interest Rates

Investors and traders naturally look to currencies that provide the
best return. If interest rates rise for a particular currency, investors will increase their
holdings in that currency to profit on the higher return. The resulting increase in
demand for the currency could cause it to appreciate in value compared to other
currencies. In common, higher interest rates encourages bullish price action, while
lower interest rates encourage bearish price action.

• Producer Price Index

Like other inflation-based reports, increasing PPI values could
signal an interest rate hike to combat inflation. Interest rate increases can lead to a
greater demand for the currency. In common, positive PPI outcomes encourage
bullish price action while negative PPI outcomes encourage bearish price action.

• Retail sales 

A stronger retail sales report indicates overall growth in the economy,
thus increasing the currency's appeal to investors. In common, stronger retail sales
encourage bullish price action where weaker retail sales encourage bearish price
action.

• Industrial production Index 

A positive or increasing IPI suggest continued economic
growth, which often leads to a stronger currency.

• Commodity Price Index

An increase in the Commodity Price Index means that
commodities are generating more income for the economy, which often leads to an
appreciation in the country's currency.

• Non-Farm Payroll

Non-farm payroll is a monthly report generated and reported by the U.S. Bureau of
Labour Statistics intended to represent the total number of paid U.S. workers of any
business, except:

- General government jobs
- Private household jobs
- Employees of non-profit organizations
- Farm employees

The nonfarm payroll statistics is reported monthly, on the first Friday of the month,
and is used to assist government policymakers and economists with determining the
current state of the economy and predicting future levels of economic activity.

The Non-Farm payrolls create a lot of volatility on the Forex market. Mostly all USD
pairs will be strongly affected by it. We advise you not to trade on NFP days. Just start
again on Mondayas you can see the continuing direction by then!

Best Forex Trading Indicators – Trading manual part 13 was originally published on: Online Review Network Service