Types of Economic Data in the FX Markets

Types of Economic Data in the FX Markets

Reading time: 9 minutes

Economic data, a flow of information listed through an economic calendar, can be perplexing at first glance. An economic calendar is akin to a trader’s roadmap, helping reveal upcoming economic data that can influence the financial markets.

What is an Economic Calendar?

Those who trade and invest in the foreign exchange market (Forex market) will be acutely aware of the economic calendar, a space tasked with listing upcoming economic data, or ‘event risk’. The released economic data can be anything from a small survey of regional manufacturing executives to central bank interest rate decisions; it is vitally important that you are conscious of the potential impact each data release brings to the table. 

An economic calendar, at the very basic level, will contain the date and time of each economic data release, the country the data is released from and, given that some data will have a localised impact, the currency of that country. A brief description of the risk event usually accompanies each release, in addition to previous data, a forecast (typically a median estimate calculated from polled economists) and the actual release value. These data points are important to understand as market participants compare actual values to the forecasts and previous readings to help gauge market sentiment and establish a trading bias. You will also find many reputable economic calendars display an importance or impact rating, reflecting the potential impact a certain event could have on the financial markets. 

Below is a screenshot of the FP Markets Trading Central Calendar that details economic data:

Three Types of Economic Indicators

*While every attempt has been made to list prominent indicators according to their category below, additional indicators may also be considered. 

There are three primary ways of identifying the different types of economic data in the Forex market. On many economic calendars, data are categorised based on their significance level, labelled as either high-impact, medium-impact or low-impact. This informs market participants of the expected bearing a particular data release is likely to have on the currency and perhaps the wider market: stocks, bonds and commodities.

The projected impact can vary depending on the economic calendar used, but generally, there is a consensus. Another important consideration is that some economic data will be more important at certain times, largely depending on the economic landscape and what the respective central bank is monitoring.

High-Impacting Data:

Inflation Data –

Data relating to inflation continues to command worldwide attention, and for most countries, the Consumer Price Index (CPI) release will be the most widely watched and talked about report. Most countries only have one single release to reflect this, but the euro area publishes two reports in the form of ‘flash’ and ‘final’ releases. The flash print garners the majority of the attention; it is the first glimpse of inflation for the euro area and, thereby, can be market moving. A broad miss or upside surprise in this data (any high-impact data, for that matter) can generate considerable volatility across relevant currency pairs, stock markets as well as bond markets. 

Employment Data –

Employment reports, particularly in the US (think non-farm payrolls release), are considered high-impacting risk events. However, it is vital that you include all of the components in your research and not just the headline employment change. These can be the unemployment rate, the participation rate, and wage data, which are predominantly important for some countries, especially the US and the UK. 

Gross Domestic Product (GDP) Data –

While the GDP report may be listed as having either a high or medium impact on some economic calendars, it can produce a meaningful reaction in the Forex market. Of relevance, in the US, quarterly GDP is released through three monthly estimates in a quarter, named ‘advance’, ‘preliminary’ and ‘final’. For the UK, two versions of quarterly GDP are released through preliminary and final reports. In the UK, there are also monthly releases, which are more timely and essentially feed into the quarterly release. Revisions to previous data in GDP can also prove market moving.

Regardless of the schedule, the first GDP release tends to claim the majority of the market’s attention, and subsequent releases only do so if there is a large variance between previous and expected values or if they are subject to large revisions. 

Purchasing Managers Indexes (PMIs) –

Global PMIs are widely followed by traders and investors. The S&P Global PMIs and the ISM (Institute for Supply Management) PMI, which is primarily for the US, are two of the more prominent indicators in this category.

For the former, PMIs are based on manufacturers' surveys. They are designed to identify and highlight business conditions; hence, they are often viewed as leading indicators. Importantly, the Global PMIs also provide access to sub-indexes, such as new orders and prices paid, as well as a separate Services PMI Index and a Composite PMI Index. The Flash PMIs are the first to be released, followed by a Final PMI release about a week later. However, the Flash release gains 95% of the attention, while the Final report is usually overlooked in the markets.

For the latter, similar to Global PMIs, the US ISM report publishes another survey based on questionnaire responses from purchasing managers in large organisations.  

Medium-Impacting Data:

Retail Sales Data –

For most countries, retail sales is a monthly release that tracks and reports sales from various establishments and is ultimately a gauge of consumer spending. For the UK and US, these may be listed in the high-impacting data column, though for many other countries, they tend to have a medium impact on the financial markets

Weekly Jobless Filings Data –

This is primarily for the US and is considered a leading indicator for the labour market. The goal is to track the number of first-time initial claims for unemployment insurance, which is usually the headline number. This is released alongside Continued Claims, another good indicator of labour market conditions that report on those who continue to claim unemployment insurance, sometimes referred to as ‘insured unemployment’. The response to this is generally moderate as the report is subject to volatility, given it being a weekly release that is challenging to adjust seasonally. 

Consumer Sentiment Data –

While this may differ between some economic calendars between high-impacting and medium-impacting, popular economic indicators that track consumer confidence are the US Consumer Conference Board’s monthly release and the University of Michigan’s Consumer Sentiment Survey (released in two parts: preliminary and revised, with the former gathering most of the market’s attention). 

Low-Impacting Data:

Housing Data –

Depending on the economic backdrop, housing data can fluctuate between medium and low impact. Here, most of the focus is directed to the US, concentrating on New Home Sales figures, Building Permits, the National Association of Home Builders (NAHB) and Pending Home Sales. 

Credit Data and Mortgage Approvals Data –

Credit data reports on the value of outstanding consumer credit based on the previous month. The latter focusses on the number of mortgages that are approved for home purchases, usually based on the previous month. 

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