Starting to use Forex economic indicators

To get started, you should first keep a log of all the important Forex economic indicators' release dates. Keep a log or make a subscription to one of the economic journals, so you'll know the most important factors of that time. If you are trading in JPY, the Forex economic indicators need to be relevant to the currency type, of course.

Each economic indicator tells you about a different aspect of the economy, and this should be translated in turn into the predicted movement of the currency price. Make sure you understand which aspect the indicator is about. For example, know that the GDP measures the growth of the economy while the PPI Don't worry, with some experience this will come naturally.

Different indicators have changing importance, according to the country's currency. Some currencies might have inflation indicators as key economic indicators while others will have employment rates as key indicators. This is also something you should find out and read about at various books and online guides.

There are leading economic indicators, which change before a particular Forex trend is set, and lagging indicators, that change after the economy had begun to follow a certain pattern. Both indicators should be used, depending on the currency's situation.

Major Forex Economic Indicators

• The Gross Domestic Product (GDP) - The sum of goods and services produced by domestic or foreign companies.
• Industrial Production - A measure of the production change, industrial capacity and resources of a country's factories, mines and utilities.
• Purchasing Managers Index (PMI) - A monthly index of a country's manufacturing conditions, including new orders, supplier delivery times, inventories, prices, employment, export orders, and import orders.
• Producer Price Index (PPI) - A measure of price changes in the manufacturing sector.
• Consumer Price Index (CPI) - A measure of the average price level paid by urban consumers for a fixed basket of goods and services.
• Employment Cost Index (ECI) - A measure of the number of jobs in more than 500 industries in all states and 255 metropolitan areas.

TRENDS REPORTS

EURUSD Date: 2009-03-10 09:07:14 GMT GBPUSD Date: 2009-03-10 09:06:46 GMT USDJPY Date: 2009-03-10 09:06:05 GMT USDCHF Date: 2009-03-10 09:05:43 GMT NZDUSD Date: 2009-03-10 09:05:15 GMT USDCAD Date: 2009-03-10 09:04:30 GMT AUDUSD Date: 2009-03-10 09:04:15 GMT EURUSD Date: 2009-03-09 06:13:17 GMT

Descending trend

Descending trend - each time Forex rate achieves lower value - price movement, at which each subsequent local maximum and local minimum below previous.
Trend line is drawn by joining of the top points of local maxima:
Example of a descending trend
The more points of Forex rate values get on a straight line, the more trend is especially confirmed. One of the trend force criteria is its reaction to support and resistance levels. Break of support/resistance level means, that the dominating trend keeps the force. The more trend encounters the resistance or support, being unable to overcomes them, the more strong signal about weakness of a trend we receive, and the more probability of a turn in the future.
There is a number of the general rules of trend force definition:- The longer the trend is kept, the stronger it is, however it has a limit;- The more abruptly and more quickly trend, the stronger it is;- The long flat trend has an every prospect of the continuation;- Very abrupt trend can abruptly turn over also;- Any trend slackens, however probability of continuation of a trend in its any point above probability of its turn

Ascending trend-forex

If currency demand exceeds the currency offer the exchange rate grows on Forex. On the contrary if the volume of currency which participants of the market wish to sell under the given concrete price more than volume of currency which other participants of the market wish to buy the rate falls.
If demand exceeds the offer long time and causes growth of a rate sooner or later it is saturated. Since some moment the offer starts to exceed demand. It leads to sale of currency that is expressed in some decrease of its rate - trend correction.
Trend correction: the movement directed against a direction of the previous trend. The given movement does not surpass the previous trend. If to consider a trend is the phenomenon which returns the prices in "a correct channel" and does not allow market movement to deviate fundamental factors.
On an ascending trend a part of participants open long positions, satisfied by growth of an exchange rate and start to close positions - to sell currency with the purpose to fix the profit quickly. However if the principal causes causing increased currency demand, have not changed, currency buying renews, and the rate increases. Then movement of a rate gets a direction, or a trend.
There are two kinds of trend: ascending and descending trend
Ascending trend - each time in exchange rate achieves higher value in comparison with previous rate - price movement at which each subsequent local maximum and local minimum above previous.
The bottom points of waves (local minima) join a direct line - trend line:

Example of an ascending trend

Trend lines - forex trends

There are some types of trend lines in technical analysis. They are the followings:


As is easy to see, markets tend to trend higher or lower following quite geometrical patterns. In an entire uptrend, it is easy to see a series of higher highs and higher lows. If a joining line is drawn between the rising lows, this is called a trend line and it will often be accurate in projecting where the market will find support on the next hollows, thereby indicating good buying levels. When the price breaks lower through such a trendline, a sharp sell-off will often follow as many Forex market traders will have placed sell stop-orders just below the line for their long positions.The break below an uptrend line is in itself a sell signal, attracting new sellers to the market. It is normally to see the series of lower highs and lower lows in a downwards trending market. The trend line can here be drawn along the descending highs and mirrors the analysis described above.
Technical analysis holds that because every possible bit of information is included in the price of a security, it is not necessary to explicitly analyze the fundamental, economic, political, etc. factors that might influence that price. Because all available information is already included in the current price, only a study of the price movement is required. While it is not explicitly proven that prices must trend, technical analysis relies on empirical evidence and simple common sense to assert that prices do trend. Dow Theory provides much of the empirical time-tested support that prices trend to a technician.

For example, if homeowners believed that interest Forex rate increases will erode the value of their homes, they will be inclined to sell. If there were three similar homes in a neighborhood up for sale, the first house could be sold for $100,000, the second could be sold for $97,500 and perhaps the third could sell for $95,000. Rather than immediately drop down to some formulaic price based on interest rates and other inputs, prices will move consistently over time in one direction. (In a large market like global equities with many participants, prices will move in a zig-zag fashion in one direction.) Prices will continue to decline until there is a balance between buyers and sellers. This gradual (but sometimes quick) directional movement in prices (the trend) is what technical analysis attempts to identify and exploit. If a technical analyst could enter this market, he or she would likely sell short a house because the price trend is downward. A person who does not believe that prices move in trends will find little use of technical analysis. The idea that prices trend is probably the most important concept in technical analysis. Moreover, a person who disagrees with Dow Theory will also likely find fault with technical analysis.

Technical analysis believes that investors en masse display much of the same behavior as the investors that preceded them. "Everyone wants in on the next Microsoft," "If this stock ever gets to $50 again, I will buy it," "This company's technology will revolutionize its industry, therefore this stock will skyrocket,"--these are all examples of investors' attitudes repeating. To a technical analyst, the human characteristics of the market might be irrational but nonetheless they exist. Because investors' attitudes often repeat, investors' actions in the marketplace often repeat as well. I.e., patterns of price movement will develop on a chart that a technical analyst believes have predictive qualities. It is important to understand that the realm of technical analysis is not limited to charting.

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