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Economic calendars are in place to provide traders, investors, economists and whoever is interested in the economic well-being of a country’s economic landscape an organised view of upcoming scheduled economic events. Notably, some analysts refer to economic events as ‘economic data’, ‘risk events’ or ‘news events’. Regardless, they all mean the same thing to a trader: events that can increase volatility and influence price movement in the financial markets. Central bank policy decisions and speeches from central bank officials also fall under the umbrella of risk events.
In a nutshell, an economic calendar delivers data (either as a percentage but can also be numbers such as an index value or an annualised number) for a particular country for a specific economic indicator at a specific time and date. Additionally, as shown in Figure 1, it should include prior data, a forecast for the release (usually a median estimate derived from polling several economists and market professionals ahead of the event), and the actual result which will be released at the time and date seen on the far left of the calendar. Central bank speeches and minutes from central bank meetings will not contain data for obvious reasons, as shown in Figure 1.
Figure 1 (Forex Factory Economic Calendar)
An informed trader will understand the frequency of the economic data used to assess economic performance. Below are some must-know terms:
The following terms add a little more complexity:
You will find that economic calendars categorise news events into three types of potential scenarios: low impact, medium impact and high impact. The type of impact expected is calendar-specific and may differ slightly.
How a trader or investor uses their economic calendar will depend on how they approach the financial markets.
At the most basic, some may browse the calendar and look for upcoming economic events that could impact the markets. If an event is important, further research could be undertaken to learn more about what it is and what the potential impact on the markets might be. Another way to use economic calendars is to set up filters and alerts. This will allow you to receive notifications when specific events are about to happen or when the results of events have been released.
A technical analyst relying solely on technical analysis to determine trading decisions, on the other hand, tends only to use the economic calendar to note medium- and high-impacting risk events that could affect their trading operations. If you use a trading platform, such as the FP Markets MetaTrader 5 (MT5) or the FP Markets cTrader platform, these offer built-in economic calendars. This allows you to view the calendar directly from your platform and to set up alerts for specific events.
Assessing whether the reported actual data aligned with the median estimate is another common way of employing an economic calendar. For instance, using the US CPI inflation report as an example, assume the median estimate for the release was 4.5%, and the prior release was 4.8%. Suppose the actual release comes in higher than 4.5% (say, 5.0%); this would be considered an ‘upside surprise’ and could bolster the US dollar as this may fuel chances that the US Federal Reserve (the Fed) could increase the Fed Funds interest rate. This would, therefore, open the door to a long trade in, say, the US Dollar Index or a short trade in the EUR/USD.
An example of this occurred on 12 October 2023 (see Figure 2). US CPI data was released and the year-on-year value was reported at 3.7%, slightly higher than the expected 3.6% (albeit matching the prior data). Given the Fed is still attempting to tame inflationary pressures (as of writing), the inflation release increased the chances of another rate hike being seen. Thus, this expectation fuelled USD demand.
Figure 2 (Forex Factory Economic Calendar)
Central Bank Decisions:
The decisions made by central banks, such as the Fed, the Bank of England (BoE), the European Central Bank (ECB) and the Reserve Bank of Australia (RBA), can influence a broad range of asset classes: currency markets, stock markets and bond markets, for example. Central banks are responsible for setting monetary policy, which includes interest rates and other measures to manage the money supply and economy.
Changes in monetary policy can affect the relative attractiveness of different currencies, leading to significant price movements in the Forex market. One of the most important central bank decisions for Forex traders is interest rate changes. When a central bank raises its policy rate (or is expected to), it can increase volatility exponentially and make its currency more attractive to investors. Conversely, a central bank that cuts its interest rate (or is expected to) makes its currency less attractive to investors and can, therefore, weigh on the respective currency.
Three Prominent Economic Indicators:
There are three major economic indicators that we should all understand: GDP, inflation and the unemployment rate. Albeit lagging indicators, these economic releases are widely watched worldwide and help verify that a shift or change in the economy has occurred. This is unlike leading indicators, which tend to change before the economy has turned, like the stock market, new orders for manufacturing and initial claims jobs data.
Gross Domestic Product (GDP) Data:
The main objective of the GDP is to provide a single value, a specific number that summarises the dollar value (for US GDP, that is) of all economic activity over a given period, say a quarter or year.
Inflation represents the overall level of prices in an economy. The indicator measures the rate of change of these prices and helps to provide an average cost of living for the typical consumer.
Three key types of inflation exist. An increase in the overall level of prices is referred to as inflation. Disinflation refers to an increase in the overall level of prices but at a slower rate. Finally, deflation reflects overall prices that are falling.
The unemployment rate represents the percentage of the labour force (which is the sum of employed and unemployed) that is currently jobless but sought employment in the last four weeks ending in the reference week (usually the month that has the 12th day). The unemployment rate provides insights into the health of the job market and the broader economy.
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