In the forex market, traders use fundamental analysis to see the bigger picture within which the currencies are moving. In order to get a look on that bigger picture, traders use the following fundamentals. Check them out.
Economic indicators are reports from the government or a private organization that detail the country’s performance in terms of the economy. These indicators can make it easier to gauge the nation’s economic performance, but be aware that many factors and policies will influence a nation’s performance.
Each kind of economic report has a specific purpose and are useful in different ways. Some of them are very widely covered, such as unemployment numbers, while others receive less attention, like housing statistics.
Gross Domestic Product
The GDP is considered to be the broadest measure of the economy. It represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure is considered to be a lagging indicator, most traders focus on the preliminary GDP report and the final GDP figures.
Huge revisions between these reports can lead to considerable volatility. The GDP is somehow similar to the gross profit margin of a publicly traded company in that they are both measures of internal growth.
The retail sales report measures that the overall receipts of all retail stores in the country. This metric is derived from a diverse sample of retail stores all over the country. The report is particularly useful as a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables.
You can use it to predict the performance of the more crucial lagging indicators and to evaluate the immediate direction of an economy. Revisions to advanced reports of retail sales can also lead to volatility.
This report shows the changes in production of factories, utilities, and mines within the country. It also reports their ‘capacity utilizations,’ which is the level at which each factory’s capacity is being used. It’s better for a country to see a production increase while being at its maximum or near maximum capacity utilization.
Traders that are using this metric are focused on utility production. The trading industry and the trading of energy and demand are greatly affected by weather changes. This can cause great volatility in the nation’s currency.
Consumer Price Index (CPI)
The CPI is a metric for the changes in price of consumer goods across more than 200 categories. This report, when compared to a nation’s exports, can be used to determine whether a country is making or losing money on its products and its services.
On the other hand, you must be careful to monitor the exports, which is a popular focus with many traders since the prices of exports often change relative to a currency’s strength or weakness.
Other major indicators are purchasing managers index (PMI), producer price index (PPI), durable goods report, housing starts, and employment cost index (ECI). Among privately issued reports, the most popular is the Michigan Consumer Confidence Survey. These indicators, if used properly, all provide traders with good grasp of what is happening to the economy.