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What is the Role of Economic Indicators in the Forex Market

Numerous economic factors create this ongoing volatility. These factors occur due to changes in the policies of governments and/or private organizations

The forex market is highly volatile. Numerous economic factors create this ongoing volatility. These factors occur due to changes in the policies of governments and/or private organizations. These changes influence the forex market and indicate movements in currency. These are basically indicators that can be used to assess the economic performance of a nation.

Forex Market: Economic Indicators

The following are the major economic indicators that play a significant role in the forex market:

Current State of Affairs

These include statistics regarding unemployment and housing in a country. If this statistic is good, it will positively affect the rate of the country’s currency. However, if the current state of affairs in a country characterizes political upheaval, high unemployment, and inflation, it will adversely impact the prices of Forex.

Retail Sales Reports

This economic indicator is widely used to analyze Forex. These reports comprise the total receipt of retails stores throughout a country. It actually measures samples of diverse stores and not every single sale. This economic indicator is also used to analyze consumer spending patterns.

Gross Domestic Product (GDP)

This is one of the biggest measures affecting a country’s economy. It is the total market value in terms of goods and services produced in a country in a given year. While forecasting the currency rate changes, this indicator is used in combination with certain other elements. This is because it is a measurable factor that does not remain the same, even when the economy has started following a certain economic trend.

Industrial Production Report

This is one of the most reliable economic indicators. This report includes volatility in the production of factories, utilities, mines, and other such industries. The report compares the actual against production capacity that can be achieved during a certain period when production is at par with the maximum capacity, the rate of the Forex rises, which is a good signal for traders.

Consumer Price Index (CPI)

This is used to measure the change in the price level of consumer goods and services in 200 categories. It indicates whether a country is earning profits or facing losses in these categories. The number of exports of the country also plays an important role in determining this indicator. This is because the number of exports can judge a currency’s weakness or strength.

Factors affecting the forex market typically follow a certain trend. This makes it important to understand the function of each factor in forecasting currency rates. While advising traders, forex brokers usually look at economic indicators and trends.

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