Economic indicators are pieces of financial and economic data published regularly by governmental agencies and the private sector. These statistics help market observers monitor the economy’s pulse – so it’s no surprise that they’re religiously followed by almost everyone in the financial markets.
With so many people poised to react to the same information, economic indicators have tremendous potential to generate volume and to move prices. It might seem like you need an advanced economics degree to parse all this data accurately – but in fact people trading the Forex need only keep a few simple guidelines in mind to making trading decisions based on this data.
Know when the data is going to be released
Knowing when each piece of information will be released is important to successful trading. You can find these calendars on the Finexo.com web site.
Watching the economic calendar not only helps you decide how to trade using these events, it can help explain unanticipated price actions during those periods. For example: it’s the first Monday of a given month and the Dollar (USD) has been falling for close to two weeks, with many currency traders short USD positions as a result (meaning they sold the dollar and bought another currency). Friday, however, U.S. employment data is scheduled to be released. If that report looks promising, traders may start unwinding their short positions before Friday, leading to a short-term rally in USD through the week.
The reports and their effect on the overall economy
It is not important to understand every nuance of each data release, but it is vital to try and grasp the key, large-scale relationships between reports and what they measure in the economy. For example, you should know which indicators measure the economy’s growth (gross domestic product, or GDP) versus those that measure inflation (PPI, CPI) or employment strength (non-farm payrolls).
Not all economic data moves currency markets
The market usually pays more attention to some data, virtually ignoring others – it is important to know which ones can “move the market” and which ones are benign. The thing is, the focus given to a specific piece of information can change as the situation in that specific country changes. For example, if consumer prices, a.k.a. inflation are not a crucial issue for Japan, but its economic growth is problematic, currency traders might pay less attention to inflation data like the CPI (consumer price index) and focus on employment data or GDP reports.
Expectations and perceptions are everything
Many times, the data itself may not be as important as whether or not it is within the expectations set forth by the analyst, experts and pundits. If a specific report differs widely and unexpectedly from what economists and market gurus were expecting, market volatility and potential trading opportunities may result.
As well, be mindful to not act in haste when a piece of data does not come in with the expected range. Every piece of data that is released usually has adjustments to prior data. For example, the US PPI (producer price index) came in for November, it was lower than expected – however the dollar only got stronger, why? Along with the November data was an adjustment to the October data that showed a stronger PPI for that month. It is hard to factor these changes into a trade, however these changes usually only affect a currency after it is released – it is difficult to predict adjustments to prior data. Also, it is rare for a data adjustment to actually be so far off from the original data that it affects the position greatly. Traders rely on recent data, most of the time yesterdays news is kept in the past if the current situation shows something different.
How to use the data
While an economist on television might appreciate the small nuances of a report, stretching a small piece of information into a ten minute sketch, traders need to sift through the data for their own purposes allowing them to make intelligent trading decisions.
For example, many new traders watch business news networks when the Employment Report is released. They assume that new jobs are key to economic growth. That might be true, most of the time, but in trading terms non-farm payrolls is the figure traders watch most closely and therefore has the biggest impact on markets.
Similarly, PPI measures changes in producer prices generally – but traders tend to watch the PPI excluding food and energy as a market driver. Food and energy data tend to be much too volatile and subject to the revisions we spoke about earlier to provide an accurate reading on producer price changes.
The world is a very small place – the trickle down effect
Keeping up to date on the economies of the world is vital to trading currencies. Knowing not only what is happening in the countries of the currency you are not trading is as important as knowing what is happening in the countries that you trading.
It is important to understand that it is not just the data of a specific country that can affect that countries currency. The world is linked together very tightly, and the data from one country can have significant affects on others. As an example, the US exports most of the cotton that is grown there (the US is the largest cotton grower) to countries like China, whose economy is based on manufacturing. Sensing a slowdown in the recent world economy, China has cut production on clothing and textiles. This means that less cotton will be purchased by the Chinese over the next year, causing the price of Cotton to drop (supply and demand economics), in turn causing farmers in the US to make less money – in turn causing them to lay off workers – causing the unemployment level to grow. This action also brings down sales as the more unemployed eventually leads to a reduction in consumer spending.
Knowledge is everything – to successfully trade the Forex the key is to stay informed and remember the world is a very small place where the economic decision of one country can have a damaging affect on another.
What are the Key Indicators?
Traders can gauge the financial health of a given country (and its currency) through its economic data. But, just like a doctor monitoring a patient’s vital signs, the information is not equal in terms of its impact. Here’s a primer of the key economic indicators that often impact currency traders.
Economic indicators divide into leading and lagging indicators:
Leading indicators are economic factors that change before the economy starts to follow a particular trend. They’re used to predict changes in the economy.
Lagging indicators are economic factors that change after the economy has already begun to follow a particular trend. They’re used to confirm changes in the economy.
Major economic indicators
Gross Domestic Product (GDP)
The sum of all goods and services produced either by domestic or foreign companies. GDP indicates the pace at which a country’s economy is growing (or shrinking) and is considered the broadest indicator of economic output and growth.
A chain-weighted measure of the change in the production of the nation’s factories, mines and utilities, industrial production also measures the country’s industrial capacity and how fully it’s being used (capacity utilization).
The manufacturing sector accounts for one-quarter of the major currencies’ economies, so it’s critical to watch the health of factories and whether their capacity is being maximized.
Purchasing Managers Index (PMI)
The National Association of Purchasing Managers (NAPM), now called the Institute for Supply Management, releases a monthly composite index of national manufacturing conditions. The index includes data on new orders, production, supplier delivery times, backlogs, inventories, prices, employment, export and import orders. It is divided into manufacturing and non-manufacturing sub-indices.
Producer Price Index (PPI)
Measures average changes in selling prices received by domestic producers in the manufacturing, mining, agriculture, and electric utility industries.
The PPIs most often used for economic analysis are those for finished goods, intermediate goods, and crude goods.
Consumer Price Index (CPI)
Measures the average price level paid by urban consumers (80% of the population in major currency countries) for a fixed basket of goods and services. It reports price changes in over 200 categories.
The CPI also includes various user fees and taxes directly associated with the prices of specific goods and services.
Durable Goods Orders measures new orders placed with domestic manufacturers for immediate and future delivery of factory hard goods. A durable good is a product that lasts over three years, during which its services are extended.
Companies and consumers sometimes put off purchases of durable goods during tough economic times – so this figure is a useful measure of certain kinds of customer demand.
Employment Cost Index (ECI)
Payroll employment is a measure of the number of jobs at larger companies in more than 500 industries in all 50 U.S. states and 255 metropolitan areas. ECI counts the number of paid employees working part-time or full-time in the nation’s business and government establishments.
Measures total receipts of retail stores from samples representing all sizes and kinds of business in retail trade throughout the nation. It is the timeliest indicator of broad consumer spending patterns and is adjusted for normal seasonal variation, holidays, and trading-day differences.
Retail sales include durable and nondurable merchandise sold, and services and excise taxes incidental to the sale of merchandise. It doesn’t include sales taxes collected directly from the customer.
Measures the number of residential units on which construction is begun each month. A “start” refers to excavation of the foundation of a residential home.
Housing is usually one of the first sectors to react to interest rate changes. Significant reaction of start/permits to changing interest rates signals interest rates are nearing trough or peak. To analyze, focus on the percentage change in levels from the previous month. Report is released around the middle of the following month.
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The Six Steps To Follow When Trading Forex
Published on 3 years, 5 months ago in forex for beginners. 57 Comments
Learning forex? Here are six golden rules to follow before you start trading for real. Drill this carefully in your head before blowing your first live account.
Keep it simple
Too much information on your screen can prove confusing.
Not all trading platforms are created equal. Choose a platform that is proven and tested – don’t fall for an inferior trading platform because it “looks” great.
Set daily limits and follow them – Many traders look for the big score in one day. Trading should not be about changing your life overnight, but it can change your life if you create a realistic daily income and even a daily loss limit for yourself and stop trading for the day once it is reached. Too often, people lose out on profits they had during the day because they get greedy. Stay focused and be disciplined, not greedy.
Lock in your profit quickly
The profit any trader seeks comes from the fluctuations in the currency exchange market. These changes occur every second – if you wait for a huge profit you can lose whatever gains you have made in the blink of an eye. After you make an opening trade, decide upon a small profit level and set a limit order to close the position. Since most Forex providers do not charge a commission, you can make as many trades as you want until your target for the day has been reached.
Do not set yourself unrealistic targets and do not have crazy expectations. Trading, as much as it can be scientific through technical analyses, is not an exact science – there are other factors that are at play. Setting unattainable targets will lead to frustration and failure when your targets are not met.
Read – It is very important in trading international currencies to know as much as you can about the market. Knowing that the PPI of a country is low is not enough, how that relates to the rest of the world is important too. For example, Producer Prices in one country affect Consumer Prices in another – if the unemployment rate is higher then people buy less goods – which can lead to a lower valued currency.
Trade with your head, not over it
If you are a beginner, make sure you do not trade more than you can afford to lose. Emotions can be detrimental to keeping level trading head. People who cannot afford to lose the money they are trading tend to lose sight of their strategy when the trades are not going their way. This only leads to bigger losses. Create a plan and follow it – no matter what.
The old adage
It is written on every brokerage advertisement and it is true – past performance does not guarantee future results. What happened yesterday might not happen today even if the circumstances are the same. Each day brings something new – do not let your guard down and do not deviate from your plan – even if you think it could make you more money, 9 out of 10 times you will lose.
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Peter Bain’s Having Special Offer for Da Big Dog Course
Published on 4 years, 2 months ago in forex systems. 32 Comments
Here’s a mailer coming to my inbox. I’ve always enjoyed his commentaries and views on currencies highlight. Peter’s offering a special extension of membership rate of 6 months as oppose to shortening it to 4 months if your purchase the course within the next few days,
Forexmentor has an exclusive, time sensitive announcement especially for you. I know that you are interested in Forexmentor because you receive my Forex commentaries and new Forexmentor product emails. So even though you have yet to purchase my Big Dog Forex course, I consider you a member of the Forexmentor family albeit a distant member. That is why I feel that it is important to inform you of an important change to our membership program.
Effective Tuesday June 10, 2008, the length of membership associated with the purchase of my Big Dog course will change. The current membership program for course purchasers entitles you to six months access to the Forexmentor website. This allows you access to hundreds of hours of exclusive Forex related information.
Perhaps the two most important membership benefits are my AM Review and our Video Tutorial Library. I think that my AM Reviews are
unequalled for explaining how to profitably trade the forex independent of market conditions. And our Video Tutorial Library contains hundreds of videos on all aspects of trading fundamentals and techniques. I have designed and developed both my course and membership website to teach beginners how to trade the forex and to help more experienced traders improve their trading skills.
However on June 9th while none of these membership benefits will change, the length of the membership associated with your course purchase will change from six months to four months. The price will still remain the same – $495.00 for the hard copy version and $349.00 for the online version – but the membership length will be reduced to four months. Since you have indicated an interest in Forexmentor I felt that it was important that you were aware of this change so that you could plan your purchase accordingly.
So you have until midnight June 8th to purchase my course and receive the six month membership. This offer will not be available after midnight Monday.
To purchase my course with the six month membership program click on www.forexmentor.com/order.html
However even distant members of the Forexmentor family are entitled to special benefits. Therefore I want you to offer an exclusive Forex product for you to view even if you decide not to purchase my course. Recently I did a special 90 minute webinar for group of stock traders. In the webinar I explained the forex and how it was possible to trade profitability. I also gave them a brief overview of my trading strategies. As a thank you for your interest in Forexmentor I am making the recording of this webinar available to you for a limited time.
As a family member you are probably familiar with all the benefits of my Big Dog course. They are all explained better than I can do here on my www.forexmentor.com website. Let me simply say that I believe that combination of my course and associated membership benefits provide the best forex education anywhere. I hope that you will take advantage of this special course offer or at least view the exclusive webinar. Even if you decide not to take advantage of these opportunities I hope that you will continue to be a member of the Forexmentor family.
Has anyone actually reviewed Peter Bain’s course to know that it’s well worth the money spent? Share with us your experience on the materials whether its well worth the money and time to study it if you’re serious about forex.
NonFarm Payroll Tomorrow – IBFX Poses Estimates
Published on 4 years, 2 months ago in forex events. 10 Comments
NonFarm Payroll (NFP) has almost always been a big candle mover. IBFX emails the estimates on loss of 50 – 60K of payroll jobs.
Although April marked the fourth consecutive month of nonfarm payroll decline in the U.S., the 20,000 loss was a far cry better than the 75,000 economists were bracing for. Following declines of 81,000 in March and 83,000 in February, the latest decrease was led by declines in construction, manufacturing, and retail trade.
While revisions to previous payroll numbers were on the down side, they were nevertheless relatively minor. The initial March estimate of an 80,000 drop was revised down 1,000, while February’s estimated decrease of 76,000 was revised down 7,000.
The dollar extended gains against major currencies on Tuesday after the Commerce Department reported that new orders at U.S. factories rose surprisingly in April at a sharper-than-expected 1.1 percent, countering Wall Street economists who had forecast that orders would decline by 0.1 percent. The rise in April’s factory orders followed an upwardly revised increase of 1.5 percent in March orders that previously was reported as a 1.3 percent gain.
In recent remarks to the International Monetary Conference in Barcelona, Federal Reserve Chairman Ben Bernanke issued a warning on the risks that a weak dollar poses for inflation, but was quick to declare that U.S. interest rates are “well positioned” for an economy facing both price pressures and threats to growth.
The downward pressures on the dollar “have contributed to the unwelcome rise in import prices and consumer price inflation,” Bernanke said. “We are attentive to the implications of changes in the value of the dollar for inflation and inflation expectations, and will continue to formulate policy to guard against risks to both parts of our dual mandate, including the risk of an erosion in longer-term inflation expectations.”
Bernanke said GDP growth in the first quarter was “apparently positive,” and that there “may be somewhat better conditions” in the second half of 2008, due in large part to the combined effects of the Fed’s rate cuts and the fiscal stimulus package.
In his remarks, Bernanke essentially left the Fed’s economic outlook unchanged and followed other recent Fed officials in indicating no desire for additional rate-cutting.
Several key factors are thought to have influenced the April NFP report. They include:
— Household employment jumped 362,000 in April while the number of unemployed fell 189,000.
— Average hourly earnings rose a very modest 0.1 percent in April, which came in well below the market forecast for a 0.3 percent gain.
— The civilian unemployment rate slipped to 5.0 percent from 5.1 percent in March and came in better than the consensus forecast for 5.2 percent.
For week ending May 24, the Labor Department reported that the advance figure for seasonally adjusted initial claims was 372,000, an increase of 4,000 from the previous week’s revised figure of 368,000. They also reported a four-week moving average of 370,500, a decrease of 2,500 from the previous week’s revised average of 373,000.
What is NFP?
Of all the world monthly economic reports, the monthly US NFP report is the most highly anticipated and has the most dramatic impact on the currency market.
The report, which is released on the first Friday of each month and states the previous month’s numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. These numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading.
What’s more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the US economy and interest rates translate to the strength or weakness of the US dollar.
Day 2 of FXCM’s Email Tutorial Training
Published on 4 years, 2 months ago in forex for beginners. 3 Comments
I’ve gotten smarter, or so it seems.
FXCM’s 2nd part of its free email forex training covers 3 different ways to trade, namely Fundamental Trading based on news, Staying with trend (with forex indicators), or using fading sentiment index, a proprietary index which is developed by FXCM *coughs*.
Sign up for their 12 series of email forex tutorial if you’re interested in picking up forex.
Susg your Long URL
Published on 4 years, 2 months ago in forex. 4 Comments
Here’s a spam coming from Benson Koh, but I reckon it’ll do something good than bad. *Pastes what he basically wrote
susg your Long url
What susg basically does?
It shortens your url from a lengthy one (like tinyurl), say an example an eBay listing which is awefully long url
It’s good for?
* URL shorteners are important because they make long links much easier to communicate.
* Good for publications that needs lesser characters
* Good for newsgroups, especially those lengthy urls looks super messy
* Affiliate links, though unrecommended.
Try it. It’s free anyway!
It works well for me. How about you? 😉
Review of FXCM’s First Email – Introductory to Forex Trading
Published on 4 years, 2 months ago in forex resources. 11 Comments
Ah, the first tutorial on forex came just right into my mailbox from FXCM . Well, you still have to head somewhere to get the pdf for your brand new forex tutorial.
It basically covers: –
— The differences between Forex and other trading platform
— The types of currencies that are usually traded
You’d wanna try signing up and get the download link. Babypips still does a better job at this one in my opinion, but it doesn’t hurt to have an extra material for reference!
FXCM Free Forex Tutorial
Published on 4 years, 2 months ago in forex brokers, forex for beginners and forex signals. 6 Comments
Despite my inactivity, Jaclyn still faithfully updates me on FXCM’s happening. FXCM is now offering free email education, a 12 installment email tutorial on forex trading,
FXCM Free Forex Email Tutorials
FXCM (www.fxcm.com), the official currency-trading sponsor of the CNBC.com Million Dollar Portfolio Challenge, announced today that it is providing all contestants of the virtual trading competition with free forex education and trading signals to optimize their currency-trading experience.
Free Education: Contestants can sign up for FREE education lessons on trading in the currency market. Written by DailyFX.com analysts, the lessons will help traders gain an edge in trading their currency portfolio. The lessons come in an e-mail cycle, and registrants will receive 12 e-mails in total (1 lesson per day).
Sign up here: http://www.fxcm.com/cnbc-signup.jsp
Free Trading Signals: Contestants of the CNBC.com Million Dollar Portfolio Challenge contestants can also take advantage of full access to proprietary forex trading signals from DailyFX + for the duration of the contest. These proprietary trading signals will help new currency traders to construct trading ideas.
To login to DailyFX + http://plus.dailyfx.com
To learn more about DailyFX + http://www.fxcm.com/dailyfx-plus.jsp
To view the video of DailyFX + https://admin.acrobat.com/_a205571165/p67648316/
General Discussion: FXCM is happy to welcome all traders to the DailyFX.com forum, which is designed to open lines of communication between traders and to answer any questions they may have about trading foreign currencies. Contestants can discuss their currency trades and strategies with other traders participating in the challenge.
Start a discussion here: http://www.learncurrencytrading.com/fxforum/forumdisplay.php?f=171
FXCM would like to wish all traders, Good luck!
About the CNBC.com Million Dollar Portfolio Challenge:
The CNBC.com Million Dollar Portfolio Challenge is a virtual trading competition that was previously limited to stock trading only and will now feature both stock trading and currency trading. Competitors in the Challenge, which began on May 12, 2008, are given $1 million in virtual “CNBC Bucks,” $900,000 for trading common stocks, and $100,000 at ten-to-one margin for currency trading.* For 10 weeks, traders compete to win exciting weekly prizes for the highest percentage of weekly portfolio growth. At the end of the 10-week period, the top 6 players with the highest overall holdings in his or her portfolio will receive an aggregate of $1,000,000 in cash prizes, paid as annuities.
For a complete set of contest rules, and to register for CNBC.com’s Million Dollar Portfolio Challenge, please visit https://milliondollar.cnbc.com
*Leveraged foreign exchange trading carries a high level of risk, and may not be suitable for all investors. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose.
I’m not so much fan of forex signals, but I’ve signed up on their forex course to see what’s going on. Free anyway!
Technical Trade – A Hawkish AUD Ahead of AUD/USD
Published on 4 years, 2 months ago in AUDUSD and forex signals. 2 Comments
It’s just a few hours away before the announcement of key interest rates from Reserve Bank of Australia (RBA) for AUD. All technicals seem to be pointing a bear for the AUD.
AUD/ USD 4 Hour Chart
AUDUSD on 4 Hour before RBA Interest Rate Announcement
200 EMA/SMA is right at the bottom with a trendline which looks very vulnerable to break. MACD/ Stochastics is looking and waiting for the decisive moment to crossover as well.
AUD/ USD 1 Hour Chart