More than two-thirds of the changes in major currency pair activity happen because of planned economic changes. This is a big number that proves why economic calendars are important for anyone trading currencies. Even so, many traders overlook the important insights you can gather from the news.
Every hour, anywhere in the world, somebody is trading with currencies in the forex market. Quickly having knowledge of imminent economic events can decide whether your actions are profitable or costly. If you process forex economic calendar information correctly, you will act as a strong and well-planned trader.
If you are just starting in the forex markets or have been trading for years, you should focus on learning how to interpret economic calendars.
A Forex Economic Calendar is a tool that shows the planned economic announcements. A forex economic calendar works as a preview of possible market changes. Perceive this as a detailed plan that marks all upcoming economic events, information releases and statements that could shape currency prices.
They keep tabs on things such as changes in interest rates, the economy’s growth, job statistics and prices. Such information lets traders expect fluctuations in the market and take steps in their trading plans.
Most economic events are included on the calendar ahead of when they happen. Traders use this regular behavior to get ready for the market’s response and change their positions early.
The calendar gathers important economic updates in a simple way which eliminates the effort of searching on different financial news sites. By doing this, you save time and never miss important changes in the market.
Looking at the Important Parts of Economic Calendars
Being familiar with the main items listed on the forex calendar is important for reading them. Every update usually carries important details that assist traders in judging possible market changes.
Time and date data
Usually, every economic event includes its release date and time which is often given in GMT or in local time zones. Most of today’s calendars help you set the time zone to your current area for better planning.
The timing of your trades is very important in the forex market. It is important to know the exact release time of data since this lets you adjust your strategy early and be aware of rapid changes in the market.
The effect on companies from currency and country factors
All events point out the country and the currency that will likely be affected the most. US economic data affects currency pairs that include the USD, particularly EUR/USD and GBP/USD, but European Central Bank news normally has the biggest effect on the euro.
Because of location services, traders can set the app to show only updates on their favorite trading pairs. You should pay special attention to information from the United States and Europe if you are involved in EUR/USD trading.
Types of impact classification
Organizations run economic calendars by placing events into three groups depending on their capability to impact markets.
When events have little influence over prices, they don’t concern short-term traders and are called low impact.
This group of medium impact events causes currency pairs to fluctuate, easy to see in the markets.
These events are known for causing a lot of movement and volatility in different financial markets.
Pay close attention to high-impact events, since they usually offer the best chances for trading and possible risks.
The history, the projected and the actual data
The analysis of an economic calendar mainly focuses on these three numbers.
The previous figure reported for this economic indicator explains its background.
Consensus: Forecast shared by experts that shows the general view of the market.
Actual: The correct and official result announced at the planned time which instantly affects the market.
Important growth often comes from what is not covered by the numbers. If the gains or losses experienced are far away from what was expected, markets usually become more unpredictable.
How to Interpret the Information in a Forex Economic Calendar
You can easily understand economic calendars after you know how they are organized. Let me explain a useful way to analyze the things placed on your calendar.
Make sure to filter for information that is really important.
You don’t need to follow every economic announcement that appears. Concentrate on the currency pairs you deal with and tailor the calendar for your needs. For EUR/USD trading, pay close attention to news from the Eurozone and the United States and skip unimportant data from elsewhere.
You can set up your calendars to hide unimportant updates and concentrate on the biggest news. Using news filters helps you ignore unnecessary news and watch out for crucial changes in the market.
Another thing to do is assess the significance of the event.
Look at the rating and the event’s description to understand what could happen in the market. On such occasions as Non-Farm Payrolls and GDP figures, as well as when the central bank changes rates, actions need to be taken without delay.
Look into new events to discover their effects on the economy.
Understanding what each indicator is showing allows you to anticipate market responses after certain developments.
In the next step, check the Data Triangle.
Analyze the market’s feelings by comparing the previous, forecasted and actual numbers together. Major changes in the actual and expected results can have the biggest impact on the markets.
If the CPI forecast in the US is set at 3.4% and the actual rate is 3.6%, as a result of the unexpected inflation, the dollar may strengthen because traders expect the Fed to tighten its policy.
Step 4: Keep in mind the challenges and opportunities in the market.
Economic information is connected to other things. Always check the current market situation, read statements from central banks and follow geopolitical developments that could boost or reduce the significance of these releases.
If outcomes are stronger than forecasted, this could cause the value of a currency to fall despite the good economic conditions. If you want to trade successfully in forex, then you need to consider the situation.
Economic Events That Can Impact the Foreign Exchange Market
There are always certain economic indicators that cause major shifts in the market. If you understand these events, you will know how to focus your attention on your calendar.
Policies from central banks
Announcements regarding interest rates made by significant central banks can change the market hardest. Decisions made by the Federal Reserve, European Central Bank, Bank of England and Bank of Japan may result in large swings in currency prices.
When rates rise, the value of a currency is usually boosted by offering higher rewards on investments using that currency. Interest rate cuts tend to show a sign that the economy is slowing and this may result in a weaker currency.
Employment Data
Among all the employment reports, Non-Farm Payrolls have drawn particular attention. An increase in employment tends to make the dollar stronger, but poor job figures tend to weaken it instead.
Jobs and unemployment rates in other big economies do affect their currency, yet the impact is usually not as strong as that seen in the US.
Inflation Indicators
The figures in the CPI and PPI reports give useful information about inflation. Central banks refer to these indicators as they develop their monetary policy.
Inflation that seems to exceed expectations usually causes the currency to rise, thanks to expectations of strict monetary policies. In some instances, when inflation is very high, it can lead to the opposite outcome by raising doubts about the economy’s health.
GDP Releases
For the biggest picture of the economy, Gross Domestic Product figures are useful. If the economy expands at a fast pace, the country’s currency usually gets stronger, while if the economy contracts, its currency typically weakens.
When quarterly GDP in big economies is much different from what has been predicted, it can cause big changes in the financial markets.
How to Make Use of the Economic Calendar in Trading
Just reading the economic calendar won’t help much if you want to use it in your trading. Here are some steps to help you make use of your calendar in a better way.
Calendar Alerts
Turn on alerts whenever there are important changes in the prices of your trading pairs. Today’s schedules usually have alert options that keep you informed before important events.
Be sure to adjust your schedule of trading in accordance with upcoming events. Some traders try to open their trades right after releases to benefit from the first pricing changes, yet some others prefer to wait until the markets become more stable.
Watch Live Updates
Economic calendars are updated whenever actual data is issued. Keep checking reliable calendars while you are trading to get reports as they happen.
Being fast to react to new info can help trading, as long as your risk controls are ready before trading such news.
You should also review Technical Analysis.
Along with technical tools, check calendar events for better results when planning your trades. Trading patterns can break due to economic changes which may also reverse current trends.
Major economic news often affects major support and resistance levels more than usual and these levels could stick or break as a result.
Use Risk Management as a tool in your business.
Changes in economic data often lead to quick jumps in prices and may increase the difference between bid and ask prices. Change the amount invested based on your strategy and use stop-loss orders in case the market goes against you.
There are traders who choose to close their investments before big announcements, but some enjoy the extra excitement during these times.
Frequent Mistakes You Should Prevent
Even traders with a lot of experience can slip up while using economic calendars. If you miss these risks, you can see better achievements in trading.
Remember to keep time zone difference in mind. Incorrectly calculating the timing for a key release might mean you miss out on profits or run into sudden risks.
Make sure not to introduce a large amount of information to your audience. Looking at every small economic number can cause you to become confused. Concentrate on events that really affect the pairs you hold.
Do not assume that investors will act the way you expect them to. On some occasions, good economic numbers may cause a currency to weaken since markets are affected by many influences.
Economic information gets reviewed and possibly updated. Initial releases may include big changes that overturn the initial impact on the market.
Conclusion
Understanding how to use the economic calendar in forex changes your approach from taking chances to making plans. It can help show possible events leading to market fluctuations and stop expensive surprises from occurring.
First, look for important occurrences related to the currencies you are trading. Familiarize yourself with how forecasts, actual data and market behavior relate to each other. Use the analysis given here as well as your usual trading approaches for a clearer decision-making process.
Keep in mind that predictions coming from economic calendars are only estimates. Such tools allow us to think ahead, but successful trading also calls for careful risk management, proper strategy and constant updates of knowledge.
A high correlation of 68% between economic releases and currency fluctuations shows that those who follow the calendar are better positioned market players. Repetitive use of these calendar reading methods will increase your abilities to expect market changes and choose better trading strategies when the forex market is active.
