Besides inflation and jobs data, other economic releases influence the way currencies move. The economic calendar offers the information for free, so those interested in Forex trading have no excuse for not knowing the essential releases.

Throughout this Trading Academy, we covered crucial fundamental analysis concepts and the main reason why currencies move. From an economic data perspective, inflation and jobs data makes a central bank change the interest rate level.

However, they only come to complete the economic picture. On their regular meetings, central bank members analyze the entire financial data, looking at a full spectrum of indicators and economic models carefully presented by their staff and research department.

Retail Sales

Consumer spending data is a driver for inflation. Hence, central banks carefully monitor changes in this trend.

The best indicator to look at and one that creates spikes in volatility is the Retail Sales indicator. It is released in every economy, but in Forex trading the ones that create volatility are the releases in the United States and the United Kingdom.

As such, if trading the USD or the GBP, the Retail Sales indicator is an economic release worth considering in your fundamental analysis. Released monthly, it refers to the previous month, and traders closely monitor changes in trend. It shows the change in the total value of sales at the retail level and hints to changes in the overall economic activity.

Naturally, the higher the number, the better for the currency, as traders buy or go long on a better than expected release. However, when the actual data misses the forecasted number, the currency depreciates as traders suspect a decline in economic activity.

In the United States, simultaneously with the Retail Sales indicator, the Core Retail Sales comes out as well. It reflects the same thing but excludes automobiles.

Because automobiles make up about twenty percent of the Retail Sales data, they have the potential to distort it. For this reason, the core data is considered more relevant for the state of consumer spending.

Earnings Data in Forex Trading

Inflation and jobs data doesn’t refer only to the actual releases, but complementary ones also. As such, changes in earnings or how much workers make every month may indicate changes in inflationary pressures.

The release to watch is the Average Hourly Earnings (AHE) in the United States. It shows the changes in earnings from month to month, and a rising trend puts pressure on inflation. Hence, the central bank will intervene by tightening the monetary policy or changes the communication tone from normal to hawkish.

In the United Kingdom, the release is called the Average Earnings Index and shows changes in the price businesses and government pay for labor. This version even includes eventual bonuses!

Because it is a leading indicator of consumer inflation, the GBP tends to fluctuate aggressively on the release.

German IFO Business Climate

The nineteen countries that make the Eurozone form the second largest economy in the world, after the United States. The engine is the Germany economy, so what happens in Germany plays an essential role in Forex trading as the Euro is one of the most traded currencies.

As it is a survey, the IFO resembles the Purchasing Managers Index (PMI), only it is much broader. It has a strong correlation with the Eurozone overall economic activity, so Euro traders place a lot of emphasis on it.

It is an indicator of economic health, and the survey considers over seven thousand businesses. The respondents rate the current and the expected business conditions for the next six months, and the Euro traders quickly react to positive or negative changes.

Released in the second half of every month, if the actual number is bigger than the forecasted one, the Euro buyers will emerge.

Gross Domestic Product (GDP)

A great tool for comparing two economies, the GDP shows the value of total goods and services produced by an economy. Naturally, the higher the number is, the better for the currency.

In Forex trading, the GDP matters for comparing the two economies that make a Forex pair. It is vital to use the same measuring tool, so if the Eurozone GDP rises two percent and the United States GDP only 1%, the EURUSD pair will benefit from the positive difference.

Depending on the economy, there are various versions of GDP to be released. For example, in the United States, there are three releases: Advance, Preliminary and Final.

Released one month apart, the most important one and the one that creates heightened volatility is the Advance number. Because the other two rarely differ from the forecast, they tend to lose their importance.

Ideally, traders should interpret the GDP considering the inflation-adjusted value of goods and services. This way, they’ll have a clearer picture of the actual economic performance of an economy.

In the United Kingdom there are three versions of the GDP as well, but having different names: Preliminary, Second Estimate, and Final. As it is the case in the United States, the Preliminary release is the most relevant one.

Housing Data

The housing sector is one of the critical areas in an economy, and changes in housing trends influence the economic performance. The recent 2008 financial crisis in the United States started from a bubble that formed in the housing market. As a result, the entire Forex trading community and the financial world suffered for years from one of the most severe recessions.

Indicators like Existing Home Sales, Pending Home Sales, Building Permits, etc. offer plenty of relevant information about the housing market in the United States. Traders look for changes in trends that can influence the GDP and the overall market activity, so when the central bank meets again, it will change the monetary policy.

The United States is the only major economy that looks at the housing market with such great details. Other countries, like Australia and the United Kingdom, calculate a construction PMI to keep tracking the performances in the housing market. Canada, for instance, calculates a single PMI for everything, housing sector included.

Conclusion

Economic data in Forex trading aims to compare the two economies part of a currency pair. Armed with such data, traders buy or sell the news, profiting from the market swings.

The news is a significant volatility driver. Even the data presented in this article is relevant enough to create sudden spikes or dips in any currency pair.

The more the actual numbers differ from the forecast, the more significant the impact will be. Because most of the trading is done automatically, the reactions during news releases are instant.

Trading algorithms or super-computers buy or sell in huge volume. Moreover, buying and selling happen at the same time. We don’t talk about seconds here, but milliseconds.

In other words, in a few milliseconds, the market takes off, as all trading algorithms waited for the news release. Retail traders involved in Forex trading usually wait for the news to pass, before deciding if they join in the same direction or fade it.

Because everything happens so fast, news trading is difficult, especially when trading manually. Savvy traders use pending orders to trade the news, either looking to buy or sell from higher levels or lower ones.

In any case, placing pending orders implies a trading plan is in place, and that trading plan needs a money management system. It is the only way to incorporate news based Forex trading into a successful trading strategy.