Economic Indicators and their Impact on Currency Values

by Albert Schmidt


Forex traders still argue which type of analysis is better. Some say that technical analysis is enough to predict the currency prices. Others say that it is fundamental news that move the market. In fact, both are important.

Simply speaking the difference between fundamental and technical analysis is that fundamental analysis studies the impact of economy and politic on currency value while technical analysis studies the chart patterns in effort to predict the price movement.

In my opinion it is obvious for everyone that national economy would be reflected on the value of the national currency. Poor health of country's economy would result in unstable and weak currency. The same way as a company's stocks will fall in value when that company is doing poorly.

If you've been in Forex for any length of time you probably already know that when you look at the price charts at the times of important economic news releases, you will see increased volatility. These kind of news include Gross Domestic Product, trade balance, interest rates, payroll employment, etc. Most of these news have predetermined days of release so you can schedule your trading accordingly if you want to take advantage of volatility of those times.

An important thing for a trader is to keep track of when these reports are due, not only in your own country but in all of the countries whose currencies you regularly trade. It is not enough to rely on national newspapers and television for this. They do not give international economic news at a sufficiently detailed level. Therefore you need special economic publications. Many traders use the internet for this purpose this days.

I should be noted that not only fundamental economic news affect the currency price movement. Social and political state also have a great influence on currency values of the country. For example elections, social unrest, or even natural disaster can contribute a great deal into volatility of national currency.

Usually it is very difficult if not impossible to predict the impact of these events, but you can still base your trading around what is likely to happen after the event. You can backtest your system based on such fundamental news releases to see if that approach can be profitable.

So if you want do develop a trading system that will be based on fundamental indicators and their impact on Forex market then you must have a personality who enjoys reading and listening to economic and political news.

The opposite approach would be to use information about upcoming events to avoid trading at those times. Usually people who base their trading purely on technical analysis would recommend avoiding trading at the times of those events. But you still need to know what is happening, in order to keep out of the market. Therefore even if you trade only using charts and technical analysis, Forex fundamental analysis is important.

About the Author

Albert Schmidt successfully trades currencies in Forex market for a few years by now. Find out more how you too can learn Forex trading at his website about Forex trader training.