Forex Economic Calendar is a tool used for fundamental analysis. In the forex market, particularly currency, prices tend to have a lot of volatility. That volatility is compounded during event announcements. Each currency is representative of the economic, political, and social stability of a country. In this relationship, changes in the economic indicators of a country are likely to affect the value of the respective currency. Since every Forex pair consists two currencies, each pair represents the balance of market sentiment for the two countries that represent the respective currency pair. Therefore, wise traders keep track of the events that can stir up substantial volatility. It provides the details about the data/events of countries around the globe. It gives you important updates about GDP, CPI, Retail sales, Trade balance, etc. The data in forex calendar is of different priority/importance. The data shown gives you the idea about where the currency pair is about to go. A positive data indicates the pair is about to appreciate where as a negative data indicates depreciation.
How to Use the Forex News Calendar
Traders use the economic events calendar to follow data releases and to catch price moves like the one we showed in the example above. If you have a data release, which is better than the forecast, then you are likely to see the respective currency pair appreciate versus other currencies.
Therefore, you may consider buying the currency of the country with the better-than-expected data release on the assumption that this currency will increase as a result of the optimistic economic release.
The opposite applies if the release is worse than the expectations. In this case, investors say that the data release is “downbeat,” which is likely to cause depreciation of the related currency versus other currencies. In these cases, you may consider selling the currency that is expected to depreciate.
How to read it?
The news that is making the economic calendar is known in advance and is repeated over and over again. Some of it is released monthly, and some on a quarterly or even yearly basis, and it refers to a specific economy. After all, trading the Forex market means buying or selling a currency pair, and the currency reflects the strengths or the weaknesses of an economy. At the end of the day, what a Forex trader is doing is comparing two economies (represented by the two currencies that form a currency pair) and making a trading decision based on the outcome of his/her analysis. As a rule of thumb, the stronger an economy is, the stronger the currency should be. This is an understatement though, as monetary policy is a bit more complicated than that. Speaking of monetary policy, all the economic news that is released, and can be seen on the economic calendar, is constantly watched and monitored by central banks before they set the tools that define the monetary policy. Based on this monitoring, interest rates are set.
Most economic calendars provide a short description of each event and provide a value for “actual,” “forecasted,” and “previous.” The forecasted number, expressed either as a percentage or as a currency value, represents the market impact (positive or negative) the event is anticipated to have. This number affects trading sentiment and behavior leading up to a news event. “Previous” refers to the change recorded after the last news event of this nature, and “actual” tracks the objective price movement that occurs following the event in question. Your calendar might also provide some background on each event and compare current market performance against forecasted values, as in the free version of our economic calendar pictured below.
Top News Events in Forex Trading
Not all news events have a significant impact or make reliable indicators. When it comes to trading currency, there are two events that have a higher economic impact than most.
Non-Farm Payroll (NFP) Reports
This U.S. report tracks employment rates for the majority of the U.S. labor force (omitting farmers, self-employed individuals, nonprofits, federal intelligence, and military factions). The reports are released by the Bureau of Labor Statistics on the first Friday of each month and detail stats from the previous month. The NFP report includes data on the number of new jobs created in the one-month span, the net national unemployment rate, and the national labor force participation rate—that is, the number of Americans who are actively searching for jobs or are gainfully employed. All three statistics are viewed as an indicator of the nation’s overall economic health and have a significant impact on both market perception and the relative value of the U.S. dollar.
Central Bank Interest Rate Decisions
In the United States, the central bank refers to the Federal Reserve, aka the Fed. There are seven other major central banks around the globe (the European Central Bank, Bank of England, Bank of Japan, Swiss National Bank, Bank of Canada, Bank of Australia, and the Reserve Bank of New Zealand), and interest rate decisions by any of these major players will affect how much forex traders profit or lose when borrowing a given currency or holding a position. Scheduled interest rate decisions or news announcements by any one of these major global banks are bound to influence trading sentiment and increase market volatility for associated currency pairs. Widespread news coverage of quarterly forecasts also impacts market volatility leading up to an interest rate decision, as did this Washington Post article that was published a few hours before the U.S. federal report was released on September 26.
Using News Events as Trading Indicators
To capitalize on news events, start by choosing a major currency pair that’s likely to be influenced by a major news event. For example, when using the NFP report as an indicator, you should seek out a major USD currency pair because NFP is a measure of U.S. markets.
Once you’ve located a currency pair, determining what direction to trade in is a bit more nuanced. Rather than placing orders based on forecasted numbers or market bias alone, interpret this information in the context of your other technical indicators and insights. Examine the current market trend, strength, and direction, and evaluate support and resistance levels leading up to the news event and immediately following. If a news event is anticipated to reveal positive market insight, you may see a steep surge in price action prior to the news release and witness a precipitous dip if the news defies popular expectations.
When to trade?
As with any smart trading strategy, timing is key. Day traders may look to capitalize on price volatility caused by market biases leading up to major events, but longer-term trading strategies tend to favor those with a more conservative approach. By waiting to enter into a position until immediately after the event has occurred, traders can capitalize on the volatility caused by the event and use the actual-versus-forecasted values to help predict reactionary market movement.
For example, The EUR/USD currency pair consists of two currencies – Euro and US Dollar. The Euro is the currency that represents the Euro Zone, and the US Dollar represents the USA. In this scenario, if you are trading the EUR/USD Fx pair, you will be interested in the economic events that come from the Euro Zone and the USA, since they are likely to cause the highest volatility for the EUR/USD. When volatility appears, trends are likely to emerge, providing lucrative trading opportunities for the informed trader.