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There are a number of data releases that can help traders and analysts understand changes to a country’s economy, the most relevant are:
Capital Markets – The global capital markets are perhaps the most visible indicators of an economy’s health. There is a steady flow of media coverage and up-to-the-second information on the dealings of corporations, institutions, and government entities. A rally or sell-off of securities originating from one country or another should be a clear signal that the future outlook for that economy has changed.
International Trade – The trade balance between nations serves as a proxy for the relative demand for goods from a country. For example, a nation with products or services that are in high demand internationally will typically see an appreciation of its currency. The increased demand will put upward pressure on its value.
On the other hand, countries with large trade deficits are net buyers of international goods. It is likely to negatively impact the value of an importing country’s currency.
Political News – Forex traders are constantly monitoring political news and events to anticipate shifts in government spending and adjustments in regulations imposed on particular sectors or industries. For example, changes in rules regarding margin or leverage available to traders often have a dramatic impact on markets.
Elections with uncertain outcomes are always significant events for currency markets. Exchange rates often react favorably to wins by pro-growth or fiscally responsible parties.
The fiscal and monetary policies of any government are the most critical factors in its economic decision making. Central bank decisions greatly impact interest rates.
Economic Statistics – Economic reports are the backbone of a forex trader’s playbook. Gross domestic product (GDP) may be the most visible economic statistic, as it is the baseline of a country’s economic performance and strength. However, it is crucial to remember that GDP is a lagging indicator.
Inflation is also a significant indicator, as it sends a signal of increasing price levels and falling purchasing power.
Employment levels, retail sales, manufacturing indexes, and capacity utilization also carry important information on the current and predicted strength of an economy and its currency.