When it comes to trading the Foreign Exchange (Forex) market, many investors choose to strategize their trading forecast around the volatility of the economic calendar. This calendar revolves around various government and non-government events that help build momentum and urgency for investors to more accurately target trades.
One of the biggest challenges trading around economic indicators is knowing which events are the ones to keep an eye on. That’s why we’ve gathered a list of the eight most common events our experts consider to have the most impact to generate market volatility.
Economic calendar: Events that affect Forex trading
1. Central Bank rate decisions
Every month the Central Banks of the world meet to discuss interest rates, causing some of the Forex markets highest volatility. Even more so when the interest rate hikes or there has been an unexpected cut.
The central bank has the ability to increase or decrease the discount rate of currencies, causing a drastic effect of macroeconomics including consumer borrowing and spending. With so much activity surrounding these decisions, investors keep close watch during these times to maximize their opportunities.
2. Non-farm payrolls
One of the most common reports Forex traders keep an eye on is the Non-farm Payroll Employment Report that’s produced by the U.S. Department of Labor. This report is valuable to investors because it tracks the number of jobs increased or decreased near the start of every month.
This opens allows investors to gauge the health of the economy and the height of interest rates. The higher the rate, the more intrigue will follow foreign traders to bite which, in turn, increases the overall demand for the U.S. dollar. The opposite goes for a loss in job market, which will lower the drive of demand.
3. Unemployment rate
The unemployment rate has close ties with the Non Farm Payroll released every month, and is defined as the percentage of the labor force that is actively in search of work. This is a key indicator of the health of an economy.
During a period where the U.S. labour market is weak, the Forex market could become bearish for the U.S. dollar. Indicators that unemployment will continue to rise can be seen after the GPD has bottomed out. When there is an extended period of unemployment and a deficit of jobs, the consumer sentiment will experience extreme damage causing consumer spending to have a larger impact on economic growth.
4. GDP: Gross Domestic Product
Gross Domestic Product (GDP), while leaned on as the largest measure of overall economic health, is often times pushed aside by investors because of the lack of urgency surrounding it’s publishing time. Because the data takes some time to compile, it sets up more time for trader to more accurately depict where the market is going. However, should the report be released with a different number than expected, this could cause a shift in the market.
Bottom line, as an investor it’s important to stay on top of GDP releasing simply to confirm your investments are in alignment with the what was predicted and what has come out each quarter.
5. FOMC: Federal Funds Rate
Every year the Federal Open Markets Committee (FOMC) meets eight times to determine the US monetary policy. If the outcome of the meeting strays from the current course it could directly affect the volatility of the Forex market.
When investing around this event, one of the key indicators of market volatility are the levels of interest rates in the currency pairs involved and their expectations surrounding their interest rates.If the Fed has made a changes to the federal funds rate, it will directly make a difference in the US dollar. This is crucial as it is one of the most important currencies in the Forex market.
6. Advanced monthly sales for retail trade
Advance Monthly Sales for Retail Trade, or retail sales, is the report the Census Bureau releases two weeks after each month in question. This report, in short, reports the number of percentage change from the month prior as well as the overall early estimate report of the nominal dollar value sales in the retail sector.
For shopaholics out there, this is an easy one to stay on top of — and for a good reason. Retail trade reports are golden nuggets for traders because the data is released a couple of weeks earlier than the Personal Income and Outlays report, giving headway to a more timely insight into this sector of the economy. Understanding this report is simple, if sales are increasing, it largely indicates a healthy economy lending itself to a bullish effect on the market and vice versa.
7. Macroeconomic and geopolitical events
When it comes to main drivers of movement in the Forex market, many fall under macroeconomic factors. The economy’s overall health is shaped by many of the following events that, as a whole, contribute to the stability of the markets.
These events include elections, monetary policy changes, financial crises and wars. Each of these large scale events influence the Forex market and its trade urgency as well as reshape the countries economy.
8. CPI: Consumer Price Index
Consumer Price Index (CPI) is the overall measure of the cost of goods and services and is a broad measure of inflation within the economy. This is to keep price stability in the economy, and drives massive market urgency when inflation levels are off target.
Investors look at the inflation rates to judge where the market is heading. When the inflation rate is sitting within the target rate, it’s a favorable position for traders. If it starts veering a little too far off track, this is a cause for concern as it has a negative trickle down effect into the market and overall health of the economy.
- Central Bank Rate Decision
- Nonfarm Payrolls
- Unemployment Rate
- FOMC – Federal Funds Rate
- Advanced Monthly Sales for Retail Trade
- Macroeconomic and Geopolitical Events