The Most Important Forex Market News To Keep An Eye On

News trading is becoming more popular among Forex traders because of the potential for huge earnings in a very short period of time. However, just as not all fingers are the same, not all macroeconomic news items have the same market effect. The German Flash Manufacturing PMI, for example, will always have a greater influence on the Euro than the French Flash Manufacturing PMI.

If you open an economic calendar, you can observe which news has a greater influence on the market and which you can simply disregard. For example, if you trade the Australian Dollar, you can simply disregard the Conference Board's month-over-month Leading Index reading since it will almost certainly not impact the price of AUD/USD or AUD/CAD, and even if it did, the movement will almost certainly not disrupt the underlying trend.

In contrast to low-impact news such as the CB Leading Index, the Australian unemployment rate or the overnight cash rate set by the Reserve Bank of Australia (RBA) will have a significant influence on the AUD/USD rate or any other currency pair involving the Australian Dollar.

So, how can you decide which news events to pay attention to among the hundreds of news releases？ The good news is that, similar to the Pareto principle, just a few news items account for the majority of price movement for most currency pairings. Some of these news events affect practically all currencies, and if you can merely comprehend how they affect your chosen currency pair, you will be well ahead of most inexperienced traders who just look at a chart.

Unemployment Rate

Maintaining a low unemployment rate is one of the primary objectives of central banks across the globe. Any central bank's primary monetary policy actions are all aimed at keeping inflation around the Non-Accelerating Inflation Rate of Unemployment, or NAIRU.

Every major economy publishes unemployment rate information on a monthly basis, and the lower the rate, the greater the currency's worth. mainly because when the unemployment rate falls below NAIRU, which is usually close to 4.0%, the central bank begins to raise interest rates to limit inflation and cool the economy. A low unemployment rate is closely connected with the anticipation of greater inflation and interest rates. As a result, the unemployment rate serves as an early indication of future monetary policy choices.

Figure 1: The United Kingdom and European Union Unemployment Rates

Currently, the EU has a substantially greater unemployment rate than the UK. As a result, a basic analysis would imply that the Euro is more valuable than the British Pound (EUR/GBP).

If a consensus projection indicates that the European Union's unemployment rate will fall next month but stay steady in the United Kingdom, consider it positive for the EUR/GBP.

Gross Domestic Product (GDP) Growth Rate

The Gross Domestic Product (GDP) is analogous to a game scorecard. It evaluates an economy's overall health, and the greater the GDP growth rate, the stronger the currency. If you trade the GBP/USD, you can simply predict which direction the pair will go in the future weeks by keeping a watch on GDP growth in the US and the UK.

Figure 2: Gross Domestic Product Growth Rates in the United States and the United Kingdom

Figure 2 shows that the US GDP growth rate is generally similar to the UK's. They often pass each other, though. When the GDP growth rate in the United States exceeds that of the United Kingdom, it might be seen as a negative indicator for the GBP/USD. Similarly, a prediction in which New Zealand's GDP growth rate falls below that of the UK would be a positive indication for the GBP/NZD.

Figure 3: The announcement of GDP statistics causes a sharp price increase.

Consumer Price Index (CPI)

The Consumer Price Index (CPI) gauges the rate of inflation in the economy relative to a base year. You don't have to be an economist to grasp how inflation impacts a certain set of currency pairings, but some fundamental knowledge will help you go the additional mile. Most central banks, you know, have a monetary strategy that aims to keep inflation within a specific set range. When inflation rises over this level, central banks often raise interest rates to combat inflation.

Most central banks attempt to keep inflation around 2.0% and utilize the CPI to do so. However, the Federal Reserve, the United States central bank, uses the Personal Consumption Expenditure index rather than the CPI. So, if you trade the US dollar and wish to forecast future interest rates, utilize the PCE index.

Nonetheless, any projection of rising consumer prices is good news for the euro. For example, if the UK CPI is expected to be 2.5% for a quarter while Australia's CPI stays at 1.5%, the GBP/AUD will rise.

Overnight Interest Rate

Banks, on the other hand, borrow money from one another on an overnight basis. Central banks use lending in the money market at their overnight rate to attempt to influence the overnight rate; it is an essential instrument in their monetary policy armory.

The overnight interest rate is the primary cause of market price fluctuations since it influences the swap rate. Many traders believe that the primary goal of fundamental research is to forecast future interest rates from major central banks.

While comprehending monetary policy is complicated, even for experienced economists, interpreting this news is very simple. If a prognosis indicates that the Federal Reserve will likely raise the overnight rate, the US currency will likely strengthen. So, for example, if the Japanese Central Bank maintains its interest rate, it will be good news for the USD/JPY.

U.S. Nonfarm Payrolls (NFP) Data

The nonfarm payrolls metric represents the number of extra jobs added in the corporate sector in America from the previous month, and it is an important leading indicator of the country's overall employment situation.

Figure 4: The Effect of Nonfarm Payrolls on the EUR/USD

The US dollar is the world's de facto reserve currency, and the US Bureau of Labor Statistics normally releases non-farm payroll statistics on the first Friday of each month (BLS). While not every economy has an identical data release, you should keep a watch on the US NFP since it will ultimately have a significant influence on practically all currency pairings involving the US Dollar.

If the NFP projection is greater than it was last month, it is good news for the US currency. As a result, it will have a positive influence on the USD/JPY and a negative impact on the EUR/USD.

Organization of the Petroleum Exporting Countries (OPEC)

On a global scale, OPEC is a cartel. OPEC countries include 15 or so significant crude oil-producing countries such as Saudi Arabia, Kuwait, Iran, and others.

OPEC nations now control around 44 percent of the world's crude oil supply, and their choice to boost or reduce crude oil production may have a significant influence on the global energy market. Because of the way resources are divided, there is a significant link between the currency market and the price of oil. As a result, it may alter a currency's balance of trade (BOT) and market psychology.

Since of its power over oil prices, OPEC's policies may change the currency market because they affect worldwide production, and as Forex traders, you must keep a watch on what OPEC is doing.

Because the US dollar is the de facto reserve currency, crude oil is priced in US dollars. As a result, the national currency of a country with a big crude oil reserve will be influenced by crude oil prices.

Furthermore, decreasing energy costs indicate that customers will have more discretionary cash, which may increase demand for products and services, increasing sales. As a result, when OPEC raises output, GDP growth in the United States, which has a huge oil reserve, tends to rise. However, since Japan does not have big oil reserves, it may not have a major influence on the Japanese Yen. In this case, the USD/JPY would rise since reducing oil output would be good for the US currency.

While determining the influence of oil prices on a certain currency is challenging, knowing and comprehending the impact by reading extensive research may help you feel the pulse of the market and make better trading choices.

Retail Sales

Retail sales data are typically released monthly, and market experts see them as a key macroeconomic indicator. When customers are confident in their work, they are more likely to spend money on both durable and non-durable things, which increases transactions and produces value. In terms of future GDP growth rates, retail sales may be an excellent predictor.

As previously said, the GDP is the ultimate measure of a currency's strength. How retail sales influence it may provide you a competitive advantage in the market since you can forecast GDP growth far before quarterly reports!

However, assessing retail sales is difficult since it is also affected by wage growth and the general level of productivity in the economy. Before studying retail sales figures, bear in mind that although higher sales might contribute to inflation, they can also signify overconfidence in the economy. For example, if productivity and earnings are not increasing, but only retail sales are up, it may signal that people are purchasing stuff to store up on necessities as the economy slows!

Finally, if retail sales increase in one nation, which is the base currency of the pair, but stay stable in another, which is the quote currency, this is considered good news for the base currency.

Purchasing Managers Index (PMI)

The Purchasing Managers Index (PMI) is based on survey findings of the economy's main purchasing managers. The study asks managers to assess their outlook for the firm over the next six months, including whether they expect to add new employees or decrease the size of the staff, as well as inventory levels to satisfy new orders.

The PMI may be interpreted by looking at whether the figure is above or below 50. If it is less than 50, it suggests that a recession is possible, and if it is more than 50, the economy is likely to grow.

The PMI normally hangs around 55 to 60 during normal growth periods, but the secret is to observe whether there is a trend. If the PMI has been rising steadily over the previous several months, consider it good news for the related currency. For example, if the UK PMI rose from 52 to 55 in the previous few months whereas the US PMI only rose from 52 to 53, the EUR/USD would rise.

Figure 5: A big price change follows the announcement of PMI data.

Housing Data

According to the National Association of Home Builders in the United States, the housing industry accounts for around 15 to 18% of the GDP. While the proportion of a country's GDP contributed by the housing industry varies, it is generally rather large. As a result, while trading a currency, you should keep a watch on crucial facts concerning that country's housing sector as a Forex trader.

Consider this for a moment. When would you purchase a property or begin substantial kitchen remodeling？ Isn't the solution when you have a lot of money saved up or a steady income？ As a result, when home prices or sales of housing units rise, it is natural to perceive it as a reflection of economic strength. Furthermore, new housing developments employ a large section of the labor force, which may lower unemployment and push central banks to raise interest rates.

As a consequence, strong housing statistics should be seen as substantial constructive news for the currency. For example, if Housing Starts, which measures the number of new housing units created, fell, it might indicate a slowing economy, which traders would perceive as adverse news for the US dollar. As a result, if you trade USD/JPY, you should look for chances to short the pair.

In Conclusion

Many other economic indicators, such as the Purchasing Managers' Index (PMI), Housing Starts, Capacity Utilization Rate, and so on, should be understood and incorporated into your fundamental analysis. However, if you are just getting started and want to have a sense of the market, the five economic news releases we reviewed should serve as a decent starting point.

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