Macroeconomic Forex indicators
Macroeconomic indicators are the reported data published by government services or independent organizations. They reflect state of a particular economy. The data have a direct impact on the national currency, so it's important to monitor the changes in macroeconomic indicators in Forex. This allows you to make a qualitative fundamental analysis and forecast the price fluctuations.
Macroeconomic indicators in the fundamental analysis
The currency price is a reflection of supply and demand in the market, which depends on the fundamental factors. For example, increase the people's purchasing power helps to strengthen the national currency, and the political instability causes a decline in the currency rate. The exchange rate prediction based on the study of the economic and political events forms the basis of the fundamental analysis.
Some fundamental events cannot be predicted at all. They appear suddenly and cause sharp fluctuations in the exchange rates. In most cases, a trader does not have time to prepare for. Macroeconomic indicators relate to the expected factors. Date and time of the release are known in advance and recorded in special calendars of the economic indicators. Therefore, monitoring the report releases and responding to changes in macroeconomic indicators in time, you can predict the direction of the exchange rate movement correctly, and so take the advantage.
There are more than 50 macroeconomic indicators in general. However, it is possible to overload yourself and make the wrong decision. Therefore, traders usually take into account only the main macroeconomic indicators in their fundamental analysis. These include:
Interest rates of the central banks
The interest rate is the most important indicator affecting the national currency exchange rate. It is one of the key points of the central banks' monetary policy, which helps to control the inflation level in the country. If inflation needs to be reduced, the regulator raises the interest rate, thereby reducing the amount of the free-moving money. If money supply needs to be increased, then the interest rate is reduced.
High interest rates make the national currency an attractive investment tool. This increases demand for it, so accordingly, its rate increases. Moreover, the exchange rate grows not only after the interest rates were raised, but also in anticipation of this event.
Gross Domestic Product
GDP is the total value of goods and services produced domestically for a certain period of time. Growth of the indicator means that the state economy rises, which makes it attractive for the foreign investors. This helps to strengthen the national currency. The GDP report is published quarterly.
The number of new non-farm workers of the United States per month (Non-Farm Payrolls, NFP)
This indicator is published by the US Bureau of Labor Statistics on the first Friday each month and reflects the employment dynamics in the country. The indicator calculation covers about 500 industries, including construction, production, services, finance, real estate, etc. Change in the employment level of the country directly affects the US dollar, so the NFP is called "an indicator that moves the markets." An increase of the indicator value by 200,000 units is equated to the GDP growth of 3%. Therefore, the NFP should be taken into account in the fundamental analysis.
Consumer price index
This indicator shows the changes value of the consumer basket including the main goods and services for the reporting period (month, quarter, year). Growth of this indicator leads to increase in the inflation level and warns about a possible increase in the interest rate caused by the central banks, which entails an increase in the national currency rate. The consumer price index is the indicator that causes a strong volatility in the market. The price of a currency pair may rise or fall by 50-100 points in one second.
It is ratio between the total amount of exports and imports for a certain period. If the amount of exported goods exceeds the amount of goods imported to the country from abroad, then the trade balance is considered positive. When the amount of imports exceeds exports, then the balance is negative. The positive balance is a characteristic for the growing economy, which helps to strengthen the national currency.
The ratio between the amount of funds a country receives from abroad and the amount of funds going abroad for a certain period. If the total volume of payments a country received exceeds the amount paid within liabilities to the other states and international organizations, the payment balance is surplus. Otherwise, this indicator is considered deficit. The growing surplus of the trade balance means the country is strengthening its position in the international trade sphere, which positively affects economy and contributes to the growth of the national currency rate.
Business activity index
The indicator reflects the business activity level in the country. Calculating it, both the objective indicators and the public opinion are used. It can have a value from 0 to 100. Any value above 50 is considered positive and indicates growth of economy. The index of business activity is an important indicator that allows forecasting the movement of the exchange rate.
The indicators listed above are sufficient enough to conduct qualitative fundamental analysis. Each of them is published on a certain day of the month, which allows to prepare for trading in advance. However, it's worth to remember that important news can affect the indicator level immediately. Therefore, it is also important to respond to the emergency messages in time.