Economic News is important to traders, central banks and brokers because it is the signal to investors as to how the economy is performing. For example, a lot of economic news will focus on employment numbers, inflation, consumer price index (CPI) figures and employment rate. While these are all important, you also need to understand what type of economic data is most relevant to your trading goals. In this article I present three main factors which are most relevant to Forex traders.
The first factor, which is most relevant to economic news is the change in market parameters, which are generally considered good for day traders. Typically when there is an economic change, there is an expected change in currency pairs. For example the USD/JPY has usually been a very strong buy/sell signal in the past few years, and may now be a buy only signal if the USD has strengthened versus the GBP. But, an economic change may indicate that there is going to be a large move in the other currency which will have a positive impact on your portfolio. This can be particularly true if there is rapid inflation in one country and low inflation in another.
Secondly, economics news reports will typically focus on long term economic indicators such as GDP growth, interest rates, unemployment and inflation. These indicators are considered to be long-term targets which are not influenced by short term politics or other external factors. The strength of these indicators provide the trader with a fundamental indication of how the economy is performing.
Next, we look at the relationship between economic evaluations and the currency pair prices. If there is a positive economic evaluation for a particular currency, that suggests that buyers are overly optimistic about that currency and want to purchase it now in order to lock in the profit. This can be seen as a bullish signal, which implies that the price is likely to go up over the coming period. Conversely, if there is a negative economic evaluation, then traders would expect that the value of the currency will depreciate.
Economic News is of two types: forecasting and statistical. Forecasting is based on macroeconomic data, which can be observable in time. For example, unemployment and inflation are indicators of economic performance which can be observed over time. Meanwhile, the statistics category involves looking at aggregate figures for the key economic indicators. Here, you can observe changes in consumer spending patterns, employment trends and inventories as they unfold.
Most journalists would try and obtain as wide a range of information as possible from the main economic indicators. As such, economic recovery stories make it onto the evening news, business news programs and even morning news shows. However, as mentioned earlier, this does not mean that all economic recovery stories make it into the press. In some cases economic recovery is not seen as a positive sign by the mainstream media and journalists are tasked with providing a balanced view of the situation. As such, additional analyses are published in the news which may not necessarily focus on the actual issues at hand.
When it comes to economic downturn, the situation becomes a lot murkier. Mainstream newspapers publish articles about the downsides of the economy without attempting to provide a supportive perspective. This may be because the writers know that readers are unlikely to find any significant positives in the piece. On the contrary, most journalists know that a negative story does not help the economy recover. Because of this, most people who rely on newspapers for their news understand that a focus on positive changes is a must.
Economic News from Newspapers and journals is an unavoidable fact of modern life. Economic evaluations and discussions have been written since the dawn of civilization. The challenge for writers and journalists is to interpret these discussions objectively and explain their meaning to readers in a clear and concise manner. When comparing the volume and quality of economic evaluations in the past with the present, it becomes clear that the quality of news has deteriorated considerably.