Over the course of a year, a currency pair will have to withstand a barrage of news events that will batter it from pillar to post on the FX charts. There are many different types of economic indicators, and each one will impact the FX price with a different level of intensity. With this article, we look into some of the more notable economic indicators, and their contribution towards FX trends.
How Leading Economic Indicators Shape FX Trends
As discussed above, there are many types of economic indicators – they are published with varying frequencies and will all play a very specific role in providing a barometer of economic performance, and so in shaping exchange rates one way or another. Many of the most important of these can be found by looking further into The Index of Leading Economic Indicators (LEI). Below, we’ll segregate some key economic market indicators according to their frequency of release. These releases are especially US Dollar sensitive – important since the Dollar is the global reserve currency and is involved as the counter currency in a huge number of currency transactions.
FX Sensitive Data That Is Published Weekly. Perhaps one of the most keenly analysed weekly reports is the jobless claims report which focuses on unemployment trends. In a weakening economy, unemployment will creep upwards – this will therefore tend to have a destabilizing effect on the domestic currency, weakening it considerably.
FX Sensitive Data That Is Published Monthly. The majority of economic data of interest to the FX world is more likely to be published monthly or quarterly. For example, the Consumer Confidence Report (CCI) is published by the Conference Board and presents an overview of consumer spending within the economy. Consumer Spending is extremely important within the context of the overall economy – therefore, good CCI numbers will tend to buoy up the domestic currency, with poor numbers having the opposite effect.
Also worth a look is the Business Outlook Survey – this presents the views of 5,000 managers from a particular geographical location. It can provide insight into the confidence and belief that key business leaders have within the U.S. economy which in turn can impact FX trends.
Housing and construction is also a traditionally key measure of the economy. During boom times, construction and new housing tends to be rampant – not so in recessions when both tend to perform in a patchy and gasping sort of way. The New Residential Housing Construction Report is often looked at by those who have an interest in wider economic performance. The report, released by the Census Bureau and the Department Of Housing & Urban Development, segregates construction into permits attained, housing projects completed and housing projects in progress.
Another type of housing indicator that can impact the FX markets is the Existing Home Sales Report which is released by the National Association Of Realtors. Essentially, this indicator seeks to ascertain the level of demand for housing within the economy (while the New Residential Housing Construction Report discussed above focuses on the supply). In a recession, the residential housing sector is often one of the first to decline, as people downsize or continue living where they are. This report can therefore be an indicator as to wider economic performance, which in turn will impact the domestic currency FX rates.
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