Forex Megadroid – Economic Calendar Can Spell Disaster For Your Trading Prowl
The Economic calendar helps you track major economic events and manage risk in your Forex trading by indicating potential upside and downside risk levels. Each and every major economic event are characterized by an impact from either no impact to high, medium or low impact and the previous, real and consensus outcome. EUR/USD may be a valuable currency pair at a time when you might consider it as having potential double-digit support, especially given the recent global economic outlook. The recent interest by the European Central Bank (ECB) may be driving the EUR/USD upwards against other currencies. However, if the EUR/USD depreciates, the opportunity to gain exposure through the counter market may be limited.
The economic calendar provides information on current news events that can have an effect on the value of the currencies of the countries concerned. For example, there was a report in May that the Bank of Japan will be reducing its plan to buy large-scale assets as part of its plan to strengthen the economy. The reduction in the plan could mean a weakening of the Japanese currency and that could in turn have an adverse effect on the EUR/USD. In addition, there are reports on a quarterly basis about changes in GDP growth, unemployment figures, Consumer Price Index (CPI), manufacturing, credit and loans figures, gross domestic product (GDP) figures and political and economic developments around the world.
Economic calendars can also indicate the release of key economic event data, including PMI figures, surprise Germany election results and unexpected change in oil prices. The release of such event data has a wide range of impacts on the currency markets. It can cause either a short-lived correction in the traded currency or a long-term impact, including some price volatility. There are instances when the release of economic event data by the various financial markets will have a neutral impact, with traders expecting little change in the currencies traded on their chart. However, if there is a large negative impact on the forex market, the currencies could become volatile.
On the other hand, there are instances when the data releases have a long-lasting impact on trading. The impact can be either short-lived or long-lasting. For instance, if there is a significant change in the German gross domestic product figures for the third consecutive month, traders may expect a continued increase in the gDP numbers, which will push up the euro and the USD in the short term. In the long run, a continuous long-term impact of the release of economic calendar data will eventually push up the currencies of all nations involved. Traders need to consider the strength of the fundamental analysis and its implications on the forex trading charts.
In this section, we discuss the relationship between the fundamental analysis of the economic calendar and the forex charts. Fundamental analysis includes the analysis of the credit quality of the country, interest rates, employment level, consumer price index, etc. It is believed that the strength of the fundamental analysis will be negatively correlated with the strength of the currency of the country in terms of which it is based.
On the other hand, when traders look at the economic calendar, they should take note of the economic events that will take place in the coming few days. Usually, the economic calendars are released in early March, while there is generally no major financial events in the second half of the year. The first few weeks of the fiscal year are typically a period of low activity on the global markets. Traders may start trading the currencies of countries with a negative impact on the gurus as early as March.
The economic calendar is an important tool traders use to establish the direction of the market. The impact of the calendar on the markets is usually long-lasting. Even if there is a significant impact on the gDP of the country, the impact may be transitory. As mentioned earlier, traders have to take note of the fundamentals before they go out and trade the currencies of a country that is facing a problem, rather than going in with the view of trading the economic calendar alone. By doing so, they would obviously be over-trading the currency of the country.
Basically, it all boils down to how the technical and fundamental analysis are done in the trading of the currencies. Currency traders have to make a lot of calculations and choose their entry points carefully. The use of the economic calendar, while helpful, would just put traders in a panic as they have not learnt to recognise the signal they need to look for. Therefore, traders have to make use of their common sense and good judgment in deciding when to enter a trade and when to exit the trade.