Forex Trading Articles

FUNDAMENTAL ECONOMIC INDICATORS ARE ESSENTIAL FOR PREDICTING FOREIGN EXCHANGE (FOREX/FX) CURRENCY MARKET PRICE ACTION

By Larry Litchfield for Forexmentor.com
©2007, Currex Investment Services Inc.

Jan. 11, 2006

As an economist (by education) and a FOREX instructor/trader, traders frequently ask me to explain fundamental economic indicators and their relevance to the present market conditions. Because of the complexities of the subject matter unfortunately most often my responses are also complex.

Over the years, I have seen numerous traders learn what each individual indicator is but seldom can anyone tell me how the indicators relate to one another and move the currency markets. For example, we know that Nonfarm Payroll data often will move currency markets, but knowing why the market is (or is not) moving is another question. Likewise, more often than not when there is an increase or decrease in interest rates mandated by the Federal Open Market Committee (FOMC), few traders can explain the rate changes.

It pays to understand that most economic indicators are interdependent. Knowledge of an individual indicator without knowing its relationship to other indicators can often be fruitless.

In this four-part article it is my intention to try to simplify a rather complex process in a general, but reasonably thorough, overview of what the indicators are; why they are used and how they fit together. For those of you who are really into indicators or want to be, I have also listed a few references from which you can enhance your knowledge. In the end it is my hope that you will be able to make sounder trading decisions as a result of understanding this overview.

Part One of this Article introduces you to the subject of the US Federal Reserve System and specifically the role it plays in developing policy to combat inflation and/or recession. Part Two includes some general discussion about Economic Indicators. Part Three identifies some of the more important indicators used for maximizing trading profits. Part Four concludes this article with some simple guidelines, hints and observations for processing economic data.

Proceed to Part I

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