With the Forex fluctuating from one day to the next it is important to know which factors are the most important to follow as they impact upon the movements of currencies around the world. Overall, government policies and the general state of current affairs will always be necessary to track as well, but in addition to these, certain key indicators are essential to monitor.
General state of economy
The state of the overarching economy is the first of these. This means taking into consideration all relevant statistics such as unemployment, the state of the housing market, and any recent big pronouncements from government. The basic rule of thumb is that when a country is feeling good about itself and expressing an overall air of optimism, then the forex market will reflect that in its prices. Nothing topples the applecart faster than a major political upheaval of any description, high inflation, high unemployment or a climate of malaise.
Gross Domestic Product
GDP, or Gross Domestic Product is the next. This is generally considered to be the most significant indicator in a broad sense by which to measure a country. Gross Domestic Product is the sum tally of all market value of all goods and services that the country manages to produce. Since it is an annual assessment, and not given as a variable week by week and month by month, it is a strong statistical indicator of the health of a country’s wealth. It is sometimes known as a lagging indicator within the realms of Forex market, in that it can change measurably in the wake of the country taking a certain path.
Retail Sales Reports
The third factor to consider is Retail sales reports. This equates to the sum total of all retail stores. It is not usually as specific as it sounds, more likely to be drawn from a diversity of retailers as opposed to every single one, but it is crucial as it demonstrates consumer spending. If people aren’t buying then an economy is not thriving so this is a very important aspect to watch.
Industrial Production Report
The industrial production report comes fourth in our list. This report examines what actual production has been in regard to what the capacity is for production. If a country is going full steam ahead and producing at its maximum capacity this has a great knock on effect onto the Forex and represents the ideal climate for trading in.
Consumer Price Index
Finally, the Consumer Price Index, known by its abbreviation, the CPI, is number five on this list of key indicators. If you want to analyse Forex you need to look at CPI. It measures the change in prices in 200 categories of consumer goods. It’s a fail safe way to see at a glance whether products and services are making or losing money. Most relevant in this field are exports, because a strong export market is a reflection of a currency’s strength or weakness.
By keeping a close eye on forex trends and fluctuations in each of these five areas, forecasting is built on a base of understanding, which leads to more accurate predictions and successes.