When you are trading in the forex market, you will inevitably have to deal with the concepts of economy. If you’re serious about your forex trading career, you would be more apt to stumble upon various economic phenomenon and items that you ought to understand beforehand. In this article, we’ll study the basics of economics to improve your forex trading performance.

Economic Data

Charting and chart patterns let you identify trading opportunities based on trader psychology. And in the same manner, a shift in the fundamentals of a country’s economic state will definitely have an impact on its currency’s value.

Therefore, on a daily or weekly basis, economic data has a very significant impact on a currency’s value. More specifically, the changes in interest rate, inflation, unemployment, consumer confidence, gross domestic product, political stability, et cetera, can all result to extremely large gains/losses depending on the nature of the announcement and the state of the country.

Employment Data

On a regular basis, the majority of countries release data about the quantity of people employed. In the US, the Bureau of Labor Statistics publishes employment data in a report called the non-farm payrolls, on the first Friday of each month.

In general, steep increase in employment means robust economic growth. Similarly, potential contractions may be imminent if significant decreases take place. While these are general trends, it’s still important to take into account the current position of the economy.

Inflation

Inflation data refers to the change of price levels over a period of time. Because of the sheer amount of goods and services within an economy, a basket of goods and services is used to measure changes in prices.

American inflation data is represented with the Consumer Price Index, which is published on a monthly basis by the Bureau of Labor Statistics. Greater-than-expected price increases are considered a sign of inflation, which will likely cause a country’s underlying currency to depreciate.

Gross Domestic Product

A nation’s gross domestic product is the total of all the finished goods and services generated during a specific period. GDP is calculated from private consumption, government spending, business spending, and total net exports.

American GDP information is released by the Bureau of Economic Analysis once every month during the latter part of the month. The GFP is considered the best overall indicator of the economy’s health, because GDP increases signal bullish economic outlook.

Retail sales

Retail sales data tells the amount of retailer sales that have been generated during particular period of time. This figure is used as a proxy of consumer spending levels. The measures uses the sales data from  a group of different stores to get an idea of consumer spending.

The strength of the economy can also be gauged, as increased spending means a strong economy. American retail sales data is reported by the Department of Commerce during  the middle of each month.

Macroeconomic and Geopolitical Events

The largest changes in the forex market usually come from macroeconomic and geopolitical events such as wars, elections, monetary policy changes, and financial crises. These events have the ability to change or reshape the country, including its fundamentals.

For instance, wars can cause a large economic disruption on a country and greatly increase the volatility of the region, which could influence the value of its currency. It is important be updated on the macroeconomic and geopolitical events.