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Watch for the release of these economic indicators when you trade forex… otherwise you could be in for a nasty surprise

by , 27 October 2014

Technical analysis is a great way to find trades. Not only that, you can use technical indicators to manage your risk and check what's going on with your trades.

But you can't use technical analysis with blinkers on. There are some fundamentals that can have a great effect on a currency. And this includes the release of key economic data.

This week in South Africa, there are a number of key data releases that could affect the rand.

Let's take a closer look at these and why you need to pay attention to them when you trade forex…

Forex fundamental #1: Producer price index

The producer price index (PPI) is the measure for producer inflation. This is due out on Thursday. It comes out every month.

PPI tends to have a medium impact on forex.

PPI can be a good indicator of what could happen with consumer inflation, so it’s an early indicator. This is because producers tend to pass high costs onto consumers. And this results in higher consumer inflation.

Consumer inflation tends to have a higher impact on a currency than PPI alone. And this is why PPI is important.

Forex fundamental #2: Rate of unemployment

This Thursday also sees the release of employment figures for the third quarter of the year.

The rate of employment is a very good measure of the soundness of an economy.

For instance, if unemployment drops, it’s a positive indicator. It suggests the economy is improving. On the other hand, rising unemployment indicates the economy is struggling.

If unemployment is bad, it tends to result in money flowing away from the country and towards safer currencies, like the dollar.

Forex fundamental #3: Trade balances

South Africa releases its trade balance data on Friday. This can have a high impact on a currency.

It’s a very important economic indicator. The trade balance is the net difference between the exports and imports of a country. It can reveal a lot about the health of an economy.

A currency will tend to weaken if it imports more than it exports.

That’s because the supply of the country’s currency will increase as the country’s importers sold their currency in exchange for the currency the sale was made in. This means the other currency strengthens and the domestic currency weakens.

So there you have it. Why you must watch out for the release of these economic indicators when you’re trading forex.

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Watch for the release of these economic indicators when you trade forex… otherwise you could be in for a nasty surprise
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