Economic indicators are the key statistics that show the direction of an economy. Important economic events drive the Forex price movements, therefore it is important to get familiarized of the global economic events in order to perform proper fundamental analysis, which will enable Forex traders to make informed trading decisions.
Interpreting and analyzing the indicators is important for all investors as they indicate the overall health of the economy, anticipate its stability and enables investors to respond on time to sudden or unpredictable events, also known as economic shocks. They can also be referred to as a traders 'secret weapon' as they reveal what is to come next, what may be expected of the economy and which direction the markets can take.
1-GROSS DOMESTIC PRODUCT (GDP)
The Gross Domestic Product (GDP) report is one of the most important of all economic indicators, as it is the biggest measure of the overall state of the economy. It is the total of monetary value of all the goods and service produced by the entire economy during the quarter being measured (does not include international activity).
For example, when the economy is healthy, we will see low unemployment and wages increases as businesses demand labor to meet the growing economy. A change in GDP down or up , usually has a significant effect on the market, due to the fact that a bad economy usually means lower earnings for companies, which translates into lower currency and stock prices. Investors really worry about negative GDP growth, which is one of the factors economists use to determine whether an economy is in recession.
Level of importance:High level2-CONSUMER PRICE INDEX (CPI)
Consumer Price Index (CPI) is the most widely used measure of inflation. It measures the change in the cost of consumer goods and services from month to month.
The base – year market basket is derived from detailed expenditure information collected from thousands of families and persons in the U.S.
The basket consists of more than 200 categories of goods and services separated into eight groups:
- Food and Beverage
- Housing
- Apparel
- Transportation
- Medical care
- Recreation
- education and communication
- Other goods and services
it is the best known measure for determining the cost of living changes. It is used to adjust wages, retirement benefits, tax brackets and other important economic indicators.
Level of importance:High level
3-PRODUCER PRICE INDEX (PPI)
Beside the CPI, producer price index report is considered as one of the most important measures of inflation. It measures the price of goods at the wholesale level.
As a contrast to CPI, PPI measures how much producers are receiving for the goods while CPI measures the cost paid by consumers for the goods.
The biggest attribute in the eyes of the investors is the ability of PPI to predict the CPI. The theory is that most cost increases that are experienced by retailers will be passed on to consumers. Some of the strengths of the PPI are:
- Indicator of future CPI.
- Moving the markets positively.
- Good breakdowns from investors in the companies surveyed.
But on the other hand one of the most disadvantages of PPI that not all industries in the economy are covered.
Level of importance:High level
Resources:
➧https://www.fxcc.com/major-economic-indicators