Three Most Essential Forex Trading News

Pada Senin, Mei 11, 2020 | Berkomentar
Forex Trading

Forex trading news is essential for many short-term traders. They would use news releases on several metrics of two countries’ economy and make speculations based on this. However, it is also beneficial for long-term traders who would like to see trends on a yearly basis. This is because reports like GDP, inflation rates and unemployment rates are released quarterly to annually – not so fitting for day trading after all.

Below are three essential forex trading news to speculate safely on a country’s monetary policy, rather than fiscal policy. This is due to the fact that it is much harder to speculate how a change in a country’s leadership can affect a nation’s overall economy.

1. Gross Domestic Product

GDP is the most common and reliable metric for the health of a country’s economy. However, traders should pay attention to the GDP growth rate rather than the nominal value. Even if two countries have the same nominal GDP values, their growth rate is used as a signal to speculate future GDP values and/or the strength of economic activities.

For example, if the US GDP is experiencing lower rates compared to the UK's GDP, then it is a bearish signal for GBP/USD even if the US has a much higher GDP value compared to the UK.

2. Unemployment rate

The unemployment rate as forex news may seem counterintuitive at first. When a news release states a high unemployment rate of Country A, within a few days, the currency of Country A will appreciate compared to Country B with a steady and low unemployment rate.

This is because unemployment rate is a consequence of an event, and lags behind metrics like GDP. This means the central bank will create monetary policies to lower unemployment rate for the next quarter – both the current data and future data are used. When traders discover that the central bank has failed to lower the unemployment rate compared to the last period, then it is a bearish signal. 

3. Inflation rate or Consumer Price Index (CPI)

The inflation rate is a more intuitive signal, and affects the exchange rate directly and immediately. It is after all a signal of the amount of money in circulation. An overstimulated economy will suffer high inflation rates, even if the GDP growth rate remains at an all-time high.

This doesn’t mean that you shouldn’t use the GDP growth rate as an accurate signal for economic health. You’ll need both metrics to accurately determine the currency valuation movements. A lower GDP growth rate with lower inflation rate, for example, may signal a bullish movement since traders will speculate that the central bank will stimulate the economy and appreciate the currency in the next period. 

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