The stock market and Forex fluctuate according to two main factors: the technical side of the market and its fundamental side. That's why the vast majority of traders start their day by looking at the economic calendar and the most important economic agenda for the next session, in order to implement their strategy in the best possible way.
In some cases, after reviewing the economic agenda in the economic calendar, traders decide to trade some exciting economic and financial news, which attracts them due to the increased volatility around them.
Now let us first look at what is the economic calendar? How can we use it in trading financial markets?
What is the economic calendar?
The economic calendar will summarize the expected announcements and publications on the agenda during the upcoming trading sessions. This is the fundamental data that will affect the prices of the small and large markets. This is why the economic calendar represents one of the first tools for a trader's analysis against economic fundamentals.
The rolling economic calendar will inform the following:
- Time of publication of the economic agenda by country.
- The origin of the advertisement, the country in which the news will be published. This way, if USD/CAD is one of the pairs you trade, you will be more attentive to economic statistics in Canada and the United States.
- Its importance, i.e. the extent of the impact of the published economic agenda on the asset in question. If the effect is small, the price of the linked currency will likely not have a significant effect. In terms of price fluctuation and volatility, in the event of a highly significant announcement, significant fluctuations in the financial assets in question are expected.
- Its nature, which will allow the trader to describe this event, whether it is Mario Draghi's speech from the European Central Bank or US unemployment statistics.
- These results, combined with future statistics as well as past results, allow us to evaluate the evolution of the data and deal with market fluctuations.
With all the information available, the trader can follow stock market trends around the world in real time as well as future currency trends.
How to use the economic calendar?
Markets are often driven by economic calendars published at specific times. When trading a currency pair or CFD, it must be taken into account that the currency pair is actually represented in two different economies.
For example, EURUSD, the most traded currency pair in the world, may be based on the differences between the US and Eurozone economies, so analyzing and interpreting these economies is something traders must do to make informed assumptions about the future price movements of the chosen currency pair.
There are many events and news that build the global economic calendar. In different countries and regions around the world, different economic indicators have different impacts on the markets. For example, while the US labor market report has a significant impact on US markets, the impact of this indicator is limited for the Eurozone.
The most important economic agenda in the economic calendar
Let's take a look at the most important economic agendas from around the world that weigh the most and have the potential to really drive the local and global markets.
1. Economic calendar of the most important economic agenda in the United States of America
Regarding the US labor market, the economic indicators will be:
- Employment report , which continues to attract big movements in the markets, especially the Forex market.
- Unemployment Claims , which evaluates the number of new claims for work and updates the corresponding total.
- Unemployment rate , which represents the number of unemployed people in the country.
- NFP - America's Nonfarm Payrolls Report
Regarding the growth of the US economy, the economic calendar will be as follows:
- Gross Domestic Product or GDP is a measure of total production including goods and services in the US economy.
- I SM Manufacturing and Non-Manufacturing Index , an indicator of inflation and business conditions, to interpret the health of markets.
- Industrial production figures are the production capacity used each month.
- Durable goods orders represent orders placed with manufacturing companies in the country.
Consumer indicators will be represented by:
- Retail sales , being a monthly measure of retail sales. This economic agenda directly affects consumer spending and confidence.
As for real estate and construction:
- Housing permits and real estate building permits.
- New home sales .
To study prices:
- Consumer prices measure a range of goods and services that are widely studied by market players.
- Producer prices are achieved with producer prices for goods.
For the retail sector:
- The trade balance , which represents the difference between a country's imports and exports of goods and services.
Economic agenda related to monetary policy:
- The interest rate , which in theory will have a negative impact if it increases and a positive impact if it decreases for the country in question and its currency.
- Inflation rate , which represents the change in the price index. This index corresponds to the Consumer Price Index, which measures changes in the prices of consumer goods and services over time.
- FOMC minutes are the report of the Federal Reserve's monetary policy committee meeting .
- Speeches and decisions on the Federal Reserve’s monetary policy.
2. Economic calendar of the most important economic agenda in the European Union
In terms of the European Union's economic agenda, the important announcements are:
- Monetary policy meeting (e.g. decision on key rates) and speeches by the ECB and its representatives.
To measure the price:
- The Eurozone Consumer Price Index gives an estimate of inflation in the region in question. This indicator can be defined by country, such as France, Italy, etc.
- Employment indicators are among the most important indicators of the strength of the economy and the disparity of the unemployed, as is the German unemployment rate.
Elements for measuring EU activity and production are similarly present in the economic calendar with:
- German manufacturing orders , given that Germany is the strongest country in the European region.
- IF O index, which evaluates the current situation of companies and determines their future trends.
- The ZEW (Zentrum für europäische Wirtschaftsforschung) index is very similar to the IfO index with regard to the banking sector.
3. The most important economic agenda in the United Kingdom
There are of course similar indicators and indicators, the most important of which are:
- gross domestic product ,
- The main index of prices is called the Consumer Price Index (CPI) which determines inflation in the country. At the labor market level
- Unemployment rates report which evaluates labor market statistics and includes an index of average wages in England.
- Finally, the Manufacturing, Construction and Services PMI will allow market players to know the development in these three key sectors.
The most important economic agenda in Japan
Finally, let's discuss the most important news on Japan's economic calendar. There are not many realistic indicators that should be monitored by the Land of the Rising Sun. Let's look at the most important ones.
Bank of Japan meetings
The Bank of Japan is the body that administers monetary policy in Japan. In recent years, his mandate has focused almost exclusively on achieving inflation toward 2%, which may bring the Land of the Rising Sun out of its deflationary spiral of the last two decades.
YATSB Governor Haruhiko Kuroda introduced aggressive monetary stimulus in order to achieve the inflation target level, but it is still far from it. Despite negative interest rates, the Bank of Japan's asset purchase and yield curve control programs on 10-year government bonds failed to get close to the target.
Inflation.
Since low inflation is the biggest problem for the Japanese economy and all the ECB's efforts to address this issue, the CPI is the most important for market participants.
Other indicators, such as GDP and industrial production, arouse some interest, but in very rare cases have a serious impact on the markets.
How to trade the economic calendar in real time?
To determine how to trade the economic agenda, its importance must be taken into account and the outcome studied in relation to the expected consensus of the market. Here are some methods for managing the trading of news or economic agenda:
- Predicting Outcomes A: Here the trader will take a position in advance according to the market consensus. This approach is not recommended for day trading (short term) but can be taken for swing trading (medium/long term) with more security.
- Scenario and Buy/Sell: This approach does not take into account the results of the publication but only the fluctuation resulting from a major event in the economic calendar. The trader places orders above and below the price to enter the movement at the time of the announcement.
- Pure results monitoring : In this case, a trade is made after the results in order to follow the impact of this news and in the direction of the fundamentals.
- Waiting : Once the impact of the news is confirmed, you can join the resumption of the previous trend or enter the new trend triggered by the respective post.
Finally, there is another possible solution, but not always easy to think of, not to trade during uncontrollable events, which is also to trade in a smart way!
Can we trade news on the economic calendar?
For those of you who don't want to look at the charts and perform support and resistance analysis, or determine the trend based on technical analysis, it is quite possible to trade the economic calendar. In fact, some traders never look at the charts and take positions in the markets only based on economic indicators and their results over a medium or long-term time horizon based on anticipation of results or fundamental analysis. In this case, the trader will rely on fundamental or psychological levels to determine his risks and objectives. The table of economic figures then forms an essential element of the trader's basic tool in the medium and long term.
How can the economic agenda be integrated into the trading strategy?
The economic calendar can be used in several ways .
1. Risk management with economic statistics
In fact, a swing trader who trades the markets on daily time scales for example, will focus his attention on the Forex calendar to see if his current open positions are at risk of an economic announcement. Will this week's economic agenda allow him to manage his positions over a relatively long period of time? For example, for a currency trader, the Forex economic calendar will be necessary to know in advance when the European Central Bank will change interest rates or for any news related to quantitative easing and in general for decisions related to monetary policy.
2. Find the right timing to enter the deal
The economic calendar can help determine and find the right timing for day traders. These traders will look for specific times in the forex market, indices such as the DAX 30, or commodities to benefit from strong volatility movements generated by the news. In this case, the day's economic calendar will punctuate their daily sessions.
3. Structure your investment strategy: swing trading or scalping
A day trader who prefers technical analysis will likely use the economic calendar to manage his risk exposure, which means exiting his trades before they are announced if this should have a significant impact on them, or not taking any new trades then. Likewise, a basic swing trader will take this information into account to manage his portfolio and potentially take new trades based on the analysis of the economic results and his trading plan.
On the other hand, a day trader uses announcements to look for quick and profitable moves even if the risk remains different between the two trading styles.
Therefore, economic calendar reports serve whatever your trading style is.
Understanding the economic calendar
If you want to trade the DAX 30, real-time stock market information will be a valuable asset if you know how to translate it. A good understanding of market fundamentals as well as the behavior of the players is essential to becoming a successful trader.
If you are attracted to the foreign exchange market, for example, the Forex economic news calendar allows you to be aware of the upcoming market forecast, that is, before a major event such as a decision on the monetary direction of a country or economic area such as the European Union. It is common to observe a lack of trend in currencies related to the Euro, because market players do not want to position themselves before knowing the results of the announcement. This reversal makes it possible to avoid certain ranges and thus potential losses for a trend trader or real opportunities for range traders.
What should we know!
The market does not always follow the logic of economic results, it happens that market players have anticipated the expected news and the movement following the publication is relatively calm or not consistent with expectations. That's why interpreting the economic agenda alone is not enough to take the right trades in trading.
If you want to learn how to trade using the economic calendar or use economic announcements in your trading strategy, take your time and do it on a demo account first. This will allow you to track the impact of the economic agenda on online investing and help you pay more attention to this data that affects currency prices and other financial instruments.
You also have the ability to trade risk-free with a demo trading account. This means that you can avoid putting your capital at risk, and you can choose when you want to move to the live markets.
