Economic data releases are information sets that describe activities in an economy. Typically they are in a time series format that covers, weeks, months, quarters or yearly statistics. Each economic data release will have its own format for how often it is released and at what times but they typically are pre-scheduled and released at the same time each release.
Economic data releases are something that is very important when it comes to moving the Forex market. These are regularly published by government agencies and central banks around the world. Every day, stocks, bonds and currencies fluctuate in response to and the expectations of new economic information and the data produced by economic data releases. So, needless to say, they are a big deal!
Economic Data Primer
Professional traders and money managers spend a lot of their time researching economic data statistics because they provide crucial clues about financial markets and the potential future health of economies. They do this because fundamentals and economic indicators are what move the Forex market a good majority of the time.
In this article, we will refer to economic indicators, data sets, figures, releases, and economic news sets interchangeably throughout this lesson. They all describe the same thing. Different analysts will prefer to use one term over another to describe the same thing which is why we will use them interchangeably. We will look at some of the major economic figures that can and do have an impact on the prices of currency pairs in the Forex market because paying attention to these figures is very important as they will have an impact on your trading.
Some of this information might not be the most exciting right now but it’s all something that you will undoubtedly come across on a daily basis when you are trading in the Forex market. As with all things you will gain a much greater understanding of how these economic releases impact the markets by experiencing them in real-time.
The Importance of Globalization
It was once the case when traders would primarily concern themselves with United States based statistics because, at the time of this writing, the United States is the world’s largest economy and single superpower. However, with today’s globalization of financial markets and the reduction of trade barriers between most countries, this is no longer the absolute case. Globalization is a real thing and here to stay (for now) so traders need to make sure they are paying attention to economic data sets from the other key countries that belong to the currencies they are trading as well. This is particularly true for key currencies such as the Great British Pound, Euro, Japanese Yen, Swiss Franc and the Canadian, New Zealand, and Australian Dollars.
Of course, if a trader is interested in trading emerging currencies such as the Mexican Peso or some of the Scandinavian currencies then they will need to concern themselves with the indicators from those countries as well. The good news is that more and more people are jumping into those currencies so more information is becoming broadly available now.
How to know when Economic Data is Released
Almost all economic data and statistics are published at pre-set times during the month. This means that traders will know well ahead of time what data is coming out as long as they use an economic calendar ahead of time.
One of the best and most simple to use free economic calendars that is one of the most highly used by retail traders is from Forex Factory.
For the most part, traders will want to concern themselves with the data sets that have the impact coloured red. This is not always the case though; sometimes orange impact events will move the markets quite a lot and sometimes there will be red impact events that are not all that important.
For example, at the time of this writing, Forex Factory puts the weekly jobless claims out of the U.S. as a red impact event. However, we have found that this rarely moves the U.S. dollar because it is a “weekly” release and therefore this tends to be a very consistent number and well-known expectation. However, if the market is currently very focused on jobs data of if a central bank is overly concerned with jobs then it very well could deserve to be a red impact colour.
On the flip side, at the time of this writing, Forex Factory colours U.S. Core PCE as an orange impact but this happens to currently be the Fed’s main measure of inflation so it’s actually really important and can have quite an impact on the U.S. Dollar at times.
The main thing is that traders need to be in tune with the market and what the major theme is to understand the impact of any event at any given time. A yellow impact event could be the most important thing that will move prices if that is what the market is obsessing over at that particular moment.
What Traders Need to Know about Economic Data
As a trader there are a few important things they need to know about economic data:
- What data is coming out and when.
- What the market expectations are for that data.
- What the potential impact the release could have on the currencies that will be affected.
If a trader knows the above then they can start to form a bias for their trading.
The Expectations of Data is Critically Important
When talking about fundamental economic releases; what the market EXPECTS is, at the very least, as important, if not more important, than the actual headline number when it is released.
This expectation is very often one of the deciding factors as to which economic statistics are being viewed as significant at any given point in time. For example, if the market is paying close attention to a particular economic indicator then you know that it is likely to be important because traders only want to focus on what the vast majority of market participants are focused on. Traders also want to know why they are focussing on certain information.
The simple thing with all of this is that the market is going to be paying the most attention to what the central banks are saying that they are paying the most attention to. You can really make it that simple most of the time. Generally, if a central bank publicly states that they are heavily monitoring jobs data because they are very concerned with poor readings for example, then the rest of the professional market is going to focus with laser beam precision on jobs data! In this situation, traders probably don't care much about what housing data says because the central bank is not concerned either.
In this example, the market expectation around jobs data is going to create a lot of price movement before the jobs data is actually released. This is sometimes referred to as “trading into a risk event” using the market expectation and can be very valuable to a traders trading. What happens after the jobs data is released will largely be a product of unwinding the expectations based on the actual numbers that were released.
Economic Data and Economic Cycles
It’s important to view economic data developments in the context of trends and cycles. What does this mean? Please see our Wiki on Economic Cycles where we talk about:
- Inflation
- Hyperinflation
- Deflation
- Economic Cycles and the 4 Phases
- Economic Data and Economic Cycles
You can access the main Wiki on Economic Cycles HERE.
Indicators within the Economic Cycle
Economic Cycles and where we are within them will have a certain degree of impact on economic indicators. Because Economic Cycles are so important to how an economic indicator will perform we have an entire Wiki devoted to these cycles. In this Wiki on Indicators within the Economic Cycle, we will explore:
You can access the main Wiki on Indicators within the Economic Cycle Indicators within the Economic Cycle | HERE.
Economic Data Types
In this Wiki, we will explore the various types of economic data that most countries put out in the form of pre-scheduled news releases. We will look at what each of them means and why they are important for traders to know about. Specifically, we will look at:
- Gross Domestic Product
- Employment
- Unemployment
- Personal Income and Disposable Income
- Consumer and Personal Expenditure, Private Consumption
- Consumer Confidence
- Business Conditions: Indices and Surveys
- Inventory Data
- Industrial and Manufacturing Production
- Capacity Utilization
- Manufacturing Orders
- Motor Vehicles
- Construction Orders and Output
- Housing Starts, Completions, and Sales
- Retail Sales or Turnover, Orders and Stocks
- Wholesale Sales or Turnover, Orders with Stocks
- Imports of Goods and Services
- Exports of Goods and Services
- Trade Balance, Merchandise Trade Balance
- Export and Import Prices, Unit Values
- Producer and Wholesale Prices
- Surveys of Price Expectations
- Wages, Earnings, and Labour Costs
- Unit Labour Costs
- Consumer or Retail Prices
You can access the main Wiki on Economic Data Types HERE.
Specific Economic Indicators
In the following Wiki, we will explore Specific Economic Indicators, why they are important and what traders need to know about them so that they can navigate the Forex market better. Specifically we will explore:
- Overview of Economic Specific Indicators
- Trading with Specific Economic Indicators
- Growth Domestic Product Expanded
- Consumer Price Index (CPI)
- Non-Farm Payrolls (NFP)
- Average Hourly Earnings
- Unemployment Rate
- Trade Balance
- Current Account
- Producer Price Index (PPI)
- Industrial Production
- ISM Manufacturing Index
- Durable Goods Orders
- Housing Starts and Building Permits
- New Home Sales
- Consumer Confidence Index
- IFO Business Climate Survey
- GDT Price Index
- Crude Oil Inventory Numbers
- Economic Indicator Wrap Up
You can access the main Wiki for Specific Economic Indicators HERE.
Economic Indicator Pre-Trade Considerations
When incorporating economic indicators into your trading routine there are 4 major things that you must consider:
- The key number from the economic indicator announcement itself. This is frequently referred to as the headline number.
- Analysis of the indicator or an understanding what the indicator means.
- The overall consensus forecast by professional analysts before the announcement.
- The live-streaming news feed that accompanies the release. If you are just starting out there are plenty of free ones but some of these will be slightly delayed news feeds.
When it’s time for the economic release you will hear the indicator announced via the news feed by an audio squawk first which will then be followed by a text headline with some extra analysis provided by a professional analyst. There are a couple of really good premium paid audio squawk services that can really add an extra layer of profitability to your trading.
One of the most important factors of any economic indicator is the expectation or the consensus for the actual figure. This is what expert analysts and economists think the indicator will show for the given period we are looking at. For example, will the figure come out better than the previous month or worse, and if so, how much better or worse? Traders can then use this number to base their expectations.
We want to know what these expert analysts and economists think the number is going to be because it's literally their job to go through all the literature, analyze the bureau of statistics and government agencies, and spend their lives tracking and following this data. That's why these analysts exist, to feed us quality and well-thought-out expectations so that we can get a good idea of what is likely to happen with the data.
These consensus numbers are generally gathered by the main news companies such as Reuters, Bloomberg, MNI, etc. These are the companies that actually employ some of these analysts and economists. The consensuses are designed to get an average view across a wide range of different economic experts. The idea behind this is so that the data is more balanced and hopefully more accurate.
Along with these numbers the analysts also provide consensus for a high and a low figure. These high and low figures give traders a range in which to set their expectations. Traders can then use this information to potentially position themselves ahead of the event.
Think about this for a minute, professional traders do not generally trade the news as it’s released but rather they get in based on what they think might happen with the release in the days leading up to the actual release. They are attempting to price in the expectations for the upcoming news. They do this by using expert analyst expectations. This is what we call "trading into a risk event".
Another factor to keep in mind is that the markets will very often pay attention to the numbers behind the headline number. This explains times when you might get a really good headline figure, the currency pair rallies, but then the price seems to go the wrong way based on the positive headline. This can be frustrating but there can sometimes be negative things inside the figure which mean that despite the seemingly positive headline things are not actually as good as it seems.
This concept can apply to almost any type of figure and to illustrate it we will use the example of employment data.
Let’s imagine that the analyst expectation for the headline figure was 200,000 jobs created. The employment numbers beat the market expectations by a wide margin by coming out 300,000 jobs created instead of 200,000. This shows that more people have jobs than economists expected. You might think this is a very positive thing and the currency should rally which it probably initially will. However, if you look deeper into the numbers and you find that it’s made up of 400,000 part-time created and a loss of 100,000 full-time jobs while at the same time average wages have dropped dramatically then this is actually bad news because the overall standard of living for the people of the country will fall. Having more employed people is positive but having 1 person gain a new full-time position is worth at least 5 new part-time positions in economic value so the markets will obviously want to see the majority of jobs created be full-time jobs. So if we lost 100,000 full-time jobs then this is not going to be made up by the gain in part-time jobs. This is a negative release that looks positive.
This makes the headline alone not enough to tell us if the news was good or bad for the currency or the economy as a whole. This is a classic situation where we get a good headline number but the finer details show that the price will go in the opposite direction. As a trader, you need to be aware of this so that you can quickly digest all of the analysis before deciding how you will trade a particular event. But don’t worry; the news feeds will alert you to the figures behind the headline almost immediately after the initial release.
Tier one data points are, for obvious reasons, more important than tier two data points. This means that the market will generally react far more to tier one data. However, in certain circumstances, this may not always be the case.
For example, if the entire market is really concerned about oil prices and the impact that falling oil prices will have on inflation or a particular economy then this suddenly makes oil inventories much more important at that moment. This can be true even though oil inventories are typically considered to be a tier two data point. If the oil inventories show an oversupply of oil then this means potential further declines in price possibly leading to lower inflation and possibly the central bank cutting its interest rate. This sometimes happens for countries that are heavily dependent on exporting oil such as Canada. However, if the price of oil is stable then the Canadian currency will likely ignore oil as a leading pricing indicator for the Canadian currency.
As you can see, a lot of analysis is formed from the starting point of what the market is focused on most of the time. This is crucial to have in mind if you are to become successful as a trader over the long run.
Related Wikis
Readers of Economic data releases also viewed: