Fundamental indicators are basically news announcements that involve the sensitive economic data of a country. Forex traders take a very keen interest to these announcements because the currency markets typically react significantly to them.
In this article, I will briefly cover the 3 major indicators that affect the currency markets the most.
Indicator #1: Federal Open Market Committee (FOMC) Meetings
The FOMC meets eight times a year to review and evaluate the effects of monetary policies and to make appropriate adjustments when required. This is effectively the most important event in Forex trading, in terms of price volatility. Interest rate increases and decreases typically affect currency prices to a great extent.
Indicator #2: U.S. Non-Farm Payroll
This is a significant economic announcement that is released on the first Friday of every month. The non-farm payroll announcement basically reports on the strength of the nation’s business and government sectors in terms of the number of workers. Generally, a strong non-farm payroll figure indicates a robust economy. If positive figures are expected, the U.S. Dollar will typically rally.
Indicator #3: Gross Domestic Product (GDP)
This indicator measures the sum of all goods and services produced by all the businesses in a country. GDP figures indicate whether a country is expanding or shrinking. It is a broad measure of a country’s economic power and growth. Good GDP figures usually inspire confidence in investors, leading to a rally of that country’s currency value.
At this point, I would like to mention that these fundamental indicators should be mainly used for educational purposes only. They should be used to back up trading decisions, and should NOT be used alone to initiate trade entries. While news trading can be potentially lucrative, chances are that you’ll often find yourself at the losing end of the trade instead. Don’t news trade!
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Harold Hsu is the owner of http://ForexSystemProfits.com where he provides premium Forex trading information and resources.
