One of the key drivers to a currency’s value is interest rates. The higher the interest that a country pays on its money, the more than money is worth relative to other world currencies.
Those interest rates are guided by central bankers guided by economic events.
Therefore, economic news can dramatically affect forex trades. This means that forex traders must be on top of the news around the world.
Some economic news is important because it’s a guide to how a central back may or may not change interest rates in the near future. This is certainly true of anything that impacts a country’s Gross Domestic Product (GDP) and Consumer Price Index (CPI) short or long-term trends. Other news changes foreign exchange positions immediately.
In one of Jack Schwager’s MARKET WIZARDS books, a successful (pre-Internet) foreign exchange trader attributed all his success to having a large network of insiders who kept him up to date on all the relevant news affecting currency values around the world.
Consumer spending obviously affects a country’s GDP and economic outlook.
In the United States the key consumer confidence sentiment indicators are the surveys by the Conference Board and the University of Michigan. The European Commission publishes a sentiment survey once a month. In the United Kingdom the GFK Group and the Nationwide Building Society each issue key consumer confidence reports. The Cabinet Office of Japan publishes an estimate of consumer sentiment. In Australia there’s the Westpac-Melbourne Institute Survey of Consumer Sentiment published monthly. In New Zealand the Westpac-McDermott Miller Consumer Confidence Index is published quarterly.
Of course, sentiment is only a guide. Sales is where the rubber meets the road, so a country’s retail sales report is more important. In the U.S., U.K., Japan, Switzerland, Canada, Australia and New Zealand, the government issues reports on retail sales. Eurostat reports retail sales for E.U. countries.
Traders can check the U.S. Institute for Supply Management’s manufacturing and nonmanufacturing indexes released monthly and the Commerce Department’s report on durable goods orders. Europe has a Retail Purchasing Managers’ Index report. For Canada check the Ivey Purchasing Managers’ Index. Markit Economics has a Purchasing Managers’ Index for the E.U., the U.K., Japan and Australia. For New Zealand, go to Business NA. For Switzerland, Credit Suisse releases SVME PMI.
Of course, all forex traders should know to keep an eagle on trade data, since balance of trade figures dramatically affect relative currency trade values.
Of course, interest rate and central news is all-important. Watch the United States Federal Reserve, the European Central Bank, the Reserve Bank of New Zealand, the Bank of Japan, the Bank of Canada, the Bank of England, and the Swiss National Bank.
Also pay attention to what these bankers say. A pronouncement by Federal Reserve Chairman Ben Bernanke on the danger of inflation or deflation may be a critical clue to future trends.
Of course, keeping up with this data isn’t easy even for one country, let alone all the developed countries of the world. Yet that’s what moves the forex markets. You must stay ahead of the shifts in demand for one currency or the other.