Importance of the Economic Calendar for a Forex Trader
If in the previous article we’ve covered technical analysis and its importance in Forex trading. But technical analysis only isn’t enough for a proper decision in the Forex market. Fundamental analysis matters too.
We’ll cover the aspects of fundamental vs. technical analysis in a dedicated article. For now, the aim is to emphasize the economic calendar’s role in the decision-making process of all currency traders.
Any information that doesn’t belong to technical analysis is fundamental. The economic calendar is full of data that impact a country’s economy. Hence, it impacts its currency and its valuation. For this reason, it matters for Forex traders that speculate on the changes in a currency’s valuation.
Understanding the Economic Calendar
The economic calendar is the first reference a Forex broker makes to a trader. Any Forex for beginners guide or course will explain the economic calendar during its early phases.
Depending on its structure, the economic calendar reveals the economic data on most important economies. Many variations of it exist, as not all data creates the same buzz or volatility on the Forex market.
For instance, inflation or the Consumer Price Index (CPI) is a measure of how to value goods and services change in an economy. Any central bank in the world considers inflation before changing the monetary policy.
But when trading the currency market, the CPI in Bulgaria, for instance, won’t have such an impact as the CPI in the United States. The explanation is that the two economies don’t have the same importance in the Forex dashboard, as their size and currencies’ role differ.
As such, the economic calendar shows data that matters for the retail trader. It shows economic data on the most relevant economies in the world, whose currencies fluctuate hardly on data release.
Such economies are the United States, United Kingdom, Canada, Eurozone, Australia, Japan, and so on. The data affect the USD, GBP, CAD, EUR, AUD, and JPY.
When combining the currencies two by two or pairing them, the resulting currency pairs make the most critical part of the Forex dashboard. Hence, the economic calendar directly affects Forex trading and its outcome.
Any Forex education process, for instance, starts with the economic calendar. The data to be released is known in advance, both the timing and its estimate.
Depending on what the actual release shows, a currency appreciates or depreciates. For instance, jobs creation is beneficial to a currency. Therefore, when the jobs numbers come out (e.g., Unemployment Rate), it creates volatility on the currency pairs representing that economy.
The economic calendar brings both discipline and economic insight to trading. It is part of the Forex analytics process that defines fundamental analysis strategies.
Because of the economic calendar, traders know in advance the crucial data ahead. It makes it easier to calibrate the portfolio and better mitigate risk.
MT4 and MT5 trading platforms have the most important economic news part of the economic calendar integrated into their news flow. Moreover, Forex glossary terms part of the economic calendar are explained so that everyone understands how to use the information.
In the end, the economic calendar paves the road to understanding market behaviour. Behind any market move, there’s a reason, and the economic calendar helps to explain a market move. Moreover, it gives traders a fundamental reason to buy or sell a currency pair.