Economic indicators can help you decide the best time to trade and the best type of trade to make, whether one of your trading pairs is USD or not. Economic indicators are part of a fundamental analysis that works best when partnered with charting. In fact, most people use both when trading any type of investment vehicle. The indicators used in the US are often mirrored in other countries, though may have a different name.
The Consumer Confidence Index, or CCI, is a simple survey of a large sampling of households. It can help identify when consumers have higher wages and a better outlook on the economy, thus increasing spending and giving the economy a boost. It's often used by the Feds to determine when to start raising interest rates. This is one of the important economic indicators to use in forex trading.
Another important indicator is the Consumer Price Index or CPI. It's often used to measure factors such as inflation. This indicator uses a group of consumer goods and tracks the price every month. If it rises, it shows inflation. A high inflation rate may indicate devaluation of the underlying currency. Equally as important in predicting the future value of the currency is the Employment Report from the Department of Labor.
Common sense dictates that as unemployment increases, the economy declines and the value of the currency drops. However, the reverse is also true. When you see more businesses created and more people working, it's a positive time for the economy and the value of the currency. The Employment Situation Report adds even more clarity to the Employment Report.
Eight times a year representatives of the US Federal Bank hold a meeting called the FOMC and make a decision on what the prime rate of interest should be. That decision has a huge impact on the value of the US dollar. Changing interest rates not only impact inflation but also affect the currency values. If interest rates are high, investors get a higher return and that can be an incentive to attract foreign investors. However, it's a two-edged sword. If that increase in rates was to control inflation, then it actually drives the price of the currency downward.
The Gross Domestic Profit shows whether the economy is growing or shrinking and at what pace, which is also indicative of the economic performance of the country. Countries with a strong performance in this area are far more attractive to investors, thus increasing the value of the currency. Other economic indicators that are important are the balance of trade, public debt and the terms of trade. If a country has more money leaving than entering, based on the amount of spending on foreign trade, it lowers the value of the currency in a number of ways. A large amount of public debt also drives down the value of the currency.
All these economic news affect the value of the currency and can be good indicators to help you decide when the best type of trade to make and time to make it. Your trading platform should provide you with easy access to this fundamental information for your favorite trading pairs. Combining economic indicators with charting can give you all the ammunition you need to make profitable forex trades.
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