Posts Tagged ‘PPI or CPI releases’

ECONOMIC INDICATORS – A Key Factor in Currency Trading : Part 2

ECONOMIC INDICATORS – A Key Factor in Currency Trading : Part 2

Now comes the question what particular aspect of economy is being revealed through Economic Indicators.

Suppose an investor is likely to know which indicators measure the growth of the economy, for which he can directly refer to the GDP releases VS. those that measure inflation which can be traced with PPI or CPI releases or employment through non-farm payrolls releases.

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After following the data for a while, he will become very familiar with the nuances of each economic indicator and what part of the economy they are measuring.

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But it doesn’t mean that all the economic indicators are equally important although they might have been created with equal importance, some have acquired much greater potential to move the markets than others.

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Market participants will place higher consideration on one statistics vs. another depending upon the state of the economy.

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Markets are mainly looking forward for only those economic indicators which are decisive factors for the particular country.

Suppose prices are not fretted with inflation rate, then the inflation data will not keenly be observed or reacted with markets.

On the contrary, if economic growth is vexing problem, then the GDP or changes in the employment data will be eagerly anticipated and could impetuous remarkable volatility with the relevant releases.

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So, it is important that the data should fall under the expectations of the market.

There are economists and market pundits who are forecasting for each indicator when their data is trying to hit the wires.

So while knowing the economic consequences of an unexpected monthly rise of 0.4% in the producer price index (PPI) is not much more important for the investors’ short-term trading decisions then to know that this month the market is looking for PPI to fall by 0.2%.

For just looking upon headlines is not the pathway for deriving an appropriate decision.

The headline figure is for amateurs as if closely watched detail in the pay-roll data, the non- farm payroll figures are relevant.

PPI for example, is for measuring the changes in producer prices.

But it is closely watched not only for producer prices but also for ex-food and energy as if eyed upon the trader prospect the food and energy component of the data is too volatile and subject to revisions on a month-to-month basis to provide an accurate reading on the changes in producer prices.

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The important thing is that not all countries are as efficient as the G7 in releasing this information.:(

And the most valuable thing to notice is that if the trader is going to trade the currency of a particular country, he needs to find out the particulars about their economic indicators.:)

If economic indicators are highly going to shake the price action, the foreign exchange market becomes more challenging and has great potential on profit booking. Since a currency is a proxy for the country it represents, the economic health of that country is priced into the currency.

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So now it is easy to predict the relevancy of economic indicators and their impact on the currency trading. 🙂

We can also conclude that these key factors also are the concern area of currency market to derive the desirable profit.