Successful trading depends not only on the quality of technical analysis. It is also important to analyze the political and economic news that have an impact on the Forex market. A newcomer can hardly choose the important news in the daily flood of information from different sources. Read the article, what is the economic calendar, what news is really important and affects the Forex market.
What is the economic calendar, and what is it for
Many traders follow technical analysis only and do not attach importance to news. Professional traders always use not only the technical analysis but also the fundamental one.
Technical analysis is the process of forecasting price movements on the basis of its behavior in the past. Different indicators are applied in the technical analysis. Read about the indicators in more details in the article “Forex Indicators – When Maths Can Be Useful in Real Life.”
Fundamental analysis is the process of forecasting price movements on Forex on the basis of macro- and microeconomic indicators, as well as the news background. Important political and economic news significantly affect the behavior of the currency pairs, so you should take into account the news release when opening a position.
Fundamental analysis is much easier to conduct with an economic calendar. The economic calendar is a tool, which collects news, having an impact on the Forex. The calendar is a table displaying the events themselves, the time before their release, as well as the degree of impact on the market.
Why is it so important to keep a close watch on the news? Consider the following example:
On Wednesday, 14 December, the technical pattern of the GBP/USD currency pair indicated the development of the downward trend. Price kept the resistance level of 1.26850. MACD histogram had started to decline and moved into the negative zone. Stochastic Oscillator was in the neutral zone, the %K line was below the %D line. The market gave a good opportunity to open short positions. At the same time, at 11:30 (GMT + 2:00) the optimistic data on the labor market in the UK was released. The trader had to consider these events while trading, i.e. they had a significant impact on the dynamics of the currency. Within a few hours, aggressive buying was observing on the market. If the trader didn’t consider this news, the transaction would be unprofitable.
Before the news release:
After the news release:
Economic and political developments increase the volatility on the market, the price can rise or fall significantly. Therefore we can not ignore the news. It is better to use them as a hint while opening or closing the order. Add the economic calendar to your favorites and you will always be aware of oncoming changes.
How to use the calendar?
It is easy to use the economic calendar. Let’s examine its structure. In the upper right corner, there are two fields.
In the first field, you should select the time zone where you are. Typically, this happens automatically. But if you see that this field is not set to your time zone, choose it by yourself from the dropdown list.
In the second field – “More” – events are filtered due to their importance and in relation to any currency pair. If you put a tick against the field “High Impact” only and choose the USD currency, the economic calendar will display the most important news related to the US dollar.
1 column – “Date” – displays the date and time of the news release.
2 column – “Time Left” – indicates how much time remains before the release of the news, the word “Done” means that the news has been already released.
3 column – “Event” – tells about the upcoming event, which has an impact on the Forex market. If you left-click on the event, a detailed description will open:
4 column – “Impact” – means the degree of importance of the event for the market:
- High – shows a strong impact on the currency, i.e. a spike may occur;
- Medium – medium impact on the currency;
- Low – weak impact, it is unlikely there will be dramatic changes on the market;
- None – gray color usually means no economic news, but different holidays or banks weekends.
5 column – “Previous” – means the last data on the event.
6 column – “Consensus” – predicted values. The values in this column are arranged on the basis of expert opinions. Pay attention to this value to find out the possible value of the event in the near future.
7 column – “Actual” – displays the actual value of the events at the time of their release.
Let’s consider some event that has already happened.
December 16, at 10:00 the Eurozone Consumer Price Index was released. This index reflects changes in the goods and services value. The release of Consumer Price Index has an average degree of influence on the market, it affects the currency pairs that include the euro. The previous value of the index was 0.2%. As expected, the current value is -0.1%.
As you can see, it is very easy to use the economic calendar.
What news is worth paying attention to?
Remember that news marked with High can greatly affect the price movement. It is hardly impossible to predict where the price will go. You need to look how the market reacts to the specific news.
- changes in the key interest rates;
- changes in the level of employment and unemployment;
- data on inflation (consumer price indexes);
- economic growth of the country (GDP data).
The “commodity” currencies are strongly influenced by the oil and other natural resources prices. The increase of volatility on the market can also cause a variety of verbal interventions.
Remember the importance of the impact of the news on the Forex. We wish you successful trading!