Currencies do not change their exchange rates by themselves – those rates are stimulated by economic news. These data can be used to assess possible scenarios in financial markets. Below is a general guide on using the economic calendar to achieve better results in your Forex trading.
Before starting to trade, take a look at the economic calendar to see the important events of the week. The calendar can help you spot major money market events and make money without fearing aggressive currency movements.
Table of Content
What is the Economic Calendar?
The Economic calendar is also known as the Forex calendar. Contains a list of news published by governments and agencies, sorted by date. Here are some examples of these agencies:
- US Bureau of Labor Statistics (publishes US economic data)
- Eurostat (economic data published in the EU)
- Office for National Statistics (economic data published in Great Britain)
- IHS Markit (published the PMI for most countries).
How to read economic news correctly?
Economic calendars contain the dates of the most important national and international events that may influence the movements of some assets and markets. The date and characteristics of each event on the calendar can be used as an indicator to make better trading predictions.
All events on the economic calendar have a different importance and influence on the market. There are the following levels of importance:
Weak influence
News or statistics in this category have virtually no noticeable influence on the market. However, if there is no major news on the horizon, certain price fluctuations may occur.
moderate influence
Under certain circumstances, such events may influence exchange rates. However, the market may not react if something more important happens at the same time. Even so, several publications of moderate importance may offer a certain dynamic to the market.
strong influence
Such events significantly influence exchange rates, especially if they are published one by one. A combination of such events can change the trend of an instrument. This category includes events such as reports by Central Banks and their decisions on interest rates, speeches by heads of national banks, GDP statistics of major economies, Non-Agricultural Payrolls, etc.
The most important news from the Forex economic calendar
Non-Agricultural Payrolls (NFP)
This indicator tracks the employment of most of the solvent population in the US. The US Bureau of Labor Statistics publishes reports on the first Friday of each month. The reports show the number of new jobs created in the previous month, the overall unemployment rate across the country and the level of economic activity. In addition, the reports show the number of Americans who are looking for a job efficiently or who have profited from it. Each of these three values indicates the country's general economic situation. These statistics influence both market sentiment and attitude towards the USD.
Central bank decisions on the interest rate
In the USA, the role of the Central Bank is performed by the Federal Reserve System (known as the Fed). Besides the Fed, there are 7 more influential banks in the world: the Banks of Australia, England, Canada, Japan, the European Central Bank, the Reserve Bank of New Zealand, and the Swiss National Bank. Their decisions on interest rates notably influence risk assessment and potential outcomes. The speeches of monetary policymakers in the reports of such banks have a special influence on Forex and, in most cases, increase the volatility of their assets.
Final considerations
Economic calendar is crucial for Forex traders because with it they can plan their trade in advance. A lot of economic news can provoke unexpected reactions when the market moves by thousands of percentage points in a split second and as such try to stick to your money management rules to avoid such shocks.