An economic Calendar shows us traders a list of events and data releases that affect a countries economy and shows the performance of the economy in key areas. It provides us with the time and date that these will take place, it also shows us the forecast is – this means the market is expecting this outcome.
Its important to look at an economic calendar as a trader because it shows us if there is any likely volatility to take place in these currency pairs whilst we are in the trade.
Here’s what it looks like – this is from www.forexfactory.com – this is the economic calendar mostly used
Red highlighted data shows that a high impact is expected on the currency meaning volatility is expected to happen in this pair, normally upon the release in most cases you will see a candle of 50 pips or more. So if you are planning a trade and there is high impact data then please be careful.
Orange labelled data shows a medium impact would happen on the economy, so your likely to see a spike up or down to 50 pips, if the data is released comes in well over or under the forecast then it could go further, but its unlikely.
Yellow labelled data means a low impact – so you shouldn’t really see that much change within the market happen.
This only gives you an indication and not all data releases labelled low impact are actually low impact. Such as JPY CPI data, normally has a yellow label next to it, but it has a larger impact then that, personally I would class it as orange.
By clicking on the detail it will explain what each data release is and why it is important to traders, this will provide you with further insight on it. Also you are able to see the previous data releases and how they have come out. So you can gauge whether that news has been good or bad recently.
When you see the data released in green writing, it means that the data has come in better or more positive then the market expected, if it comes out in red writing then it means it has come in worse or negative compared to the what the market was expecting.
Build reviewing this into your trading plan as its important that you are aware of the journey your trade is about to go on and important to know anything that might effect your trade whilst its running. These forms part of my weekly analysis that I look ahead for the week/two weeks for important releases.
Swing traders pay less attention to these as they class these data releases as short term noise in the markets and are unlikely to get spiked out on a poor data release, where as day traders are more vulnerable to this as their stop losses are normally tighter.
The Economic releases that normally cause longer term movements are
Central Bank Base rate meetings – this is where a central bank talks about the economy, decide whether to increase, decrease or hold the current rate, they also release an economic statement with their projections of key data in the economy, investors heavily focus on these meetings as they are more then likely to invest in an economy when the central bank is projecting growth
GDP – Gross Domestic product data – this is the total of all the income a country receives on their goods, services and investments they make, so a positive reading will show the economy is growing, a negative reading will show an economy is on a down trend, if you have 2 consecutive quarters of a negative reading on GDP then the country is officially in recession. (Central Banks are more likely to cut interest rates in this scenario)
So a strong tip is to check this every time you go to place a trade.