Forex trading is about the value of national currencies (and a few international ones like the euro).
Currencies have value because they are part of the economic system in a given country – so events, economic and political, and environmental can affect the value of a national currency.
While there are always unscheduled events like earthquakes and snap elections to deal with when trading forex, there are also scheduled events that have a reasonably well-defined effect on currency pair prices.
This is why every serious forex trader starts the day by reading the forex economic calendar. Many trading sites have one, but if yours doesn’t, you can find an excellent one on Marketwatch.com. Or just Google forex economic calendar.
Here is a section of a typical forex economic calendar, for a single day:
(time is EST)
04:00 France Trade Balance
05:00 Australia Consumer Price Index
06:00 German Buba Monthly Report
07:00 PPI CORE OUTLOOK
08:00 EU28 Employment report
09:00 US Housing Starts
10:00 PMI Manufacturing UK
Typically the forex economic calendar will run right through from 12 a.m. to 11 p.m. because there are economic events that matter every hour of every day around the world – and forex is global.
There are a wide variety of economic terms used on the calendar, and it is useful to have a way to look them up if they are unfamiliar. The best site for this is called tradingeconomics.com. This site has an economic calendar of its own, along with short glosses on all of the terms used.
For example, you may wonder why the French balance of trade might affect the euro?
First, there’s a short analysis from the forex economic calendar. “The French trade deficit decreased to EUR 4.1 billion in October 2018 from a downwardly revised EUR 5.4 billion in the previous month and below market consensus of a EUR 6.0 billion gap. Exports jumped 6.2 percent to an all-time high and imports climbed at a softer 2.5 percent, also reaching a record. The balance of Trade in France averaged -1254.56 EUR Million from 1970 until 2018, reaching an all-time high of 2674 EUR Million in October of 1997 and a record low of -7811 EUR Million in January of 2017.”
What does this mean for the euro? The French economy is improving, according to this announcement, as the trade deficit is getting smaller (it is sometimes said to ‘narrow,’) while exports are at an all-time high. That’s good for the euro, and the currency almost certainly goes up against the dollar and the yen when this happens.
So, if you’ve been trading the euro, you’ve been wisely reading up about how the French economy is doing, along with Germany, UK, Italy, Spain and more. You probably expected the announcement to be a good one for the euro, so you cleverly went long in EUR/GBP ahead of the announcement, and made a bundle.
Similarly, you have Australia Consumer Price Index at 05:00. Here’s the note: “Consumer Price Index CPI in Australia increased to 113.50 Index Points in the third quarter of 2018 from 113 Index Points in the second quarter of 2018. Consumer Price Index CPI in Australia averaged 44.70 Index Points from 1950 until 2018, reaching an all-time high of 113.50 Index Points in the third quarter of 2018 and a record low of 4.20 Index Points in the first quarter of 1950.”
This suggests an overall moderate improvement in the economy, as a slight increase in inflation means the economy is growing, albeit slowly. This means that the Australian dollar is likely to hold against the US dollar so that you might trade that pair.
To give one US-based example, housing starts are considered a significant indicator of the state of the American economy, and the announcement is closely watched by traders. Here’s a look at what happens:
“In the US, housing starts on the docket today, but it could be an important signal as housing starts tend to be one of the earliest forecasters of US economic slowdown and that indicator has been trending down for months. If the decline is worse than expected, USDJPY could probe 112.00 figure as the day proceeds.”
All of this should give you a good sense of just how crucial it is to read the forex economic calendar every morning before you start trading. It enables you to start with a basic framework for action before you’ve even looked at a chart.