Fundamental economic data reports
are among the more significant information inputs because policy makers and
market participants alike use them to gauge the state of the economy, set
monetary policy, and make investment decisions. From a trader’s perspective,
data reports are the routine catalysts that stir up markets and get things
moving.
We run through a lot of economic
information while learning about forex trading, but you don't need to understand
it like an economist - you’re mainly interested in what it means for the market
reaction. To help, I classify each data report in terms of its usual impact on
the market according to the following relevance levels. Keep in mind that these
classifications are how I look at the data reports (others may attach different
significance) and also that the relevance levels can change depending on the
environment.
- Low: These data reports normally don‘t move the market significantly, but instead color in the background of the bigger economic picture. When these reports do exert an impact, it’s usually to reinforce an existing trend, such as when a currency is under pressure, and a low relevance report for that country comes in weak or worse than expected, the existing selling pressure may be amplified. Rarely will low-relevance reports reverse a directional movement.
- Medium: These data reports can have a larger impact on the market, especially in the immediate minutes and hours following the release, if the circumstances are right, such as when the data is sharply out of line with market expectations or significantly contradicts the market’s future outlook. Medium-relevance reports typically amplify an existing directional trend when they support that trend and may provoke reversal if they’re sufficiently at odds with the directional move.
- High: These data reports are the biggest market movers and can lead to the greatest price volatility both immediately after their release and over successive trading days. These reports form the foundation of the market's primary future outlook and will reinforce existing trends and provoke potentially larger reversals. Get to know these ones.
As I note in “Putting Market Information into Perspective: Focusing on Themes”, the significance of individual reports rises and falls depending on the
environment, the market’s current focus, and a host of other factors. A data
series (an economic report viewed over time, also called data points) that’s
regularly driving the market over a period of months may lose relevance quickly
if it changes course or other themes become the center of attention.
If you go through my blog from
the first post, you would notice that I’ve discuss on how to absorb the various
data reports and factor them into a broader view of the economic outlook for
each particular country, with its attendant implications for interest rates and
currency values. And then, I go through the major data reports to give you an
idea of what they cover and how the market interprets them.
Finding the Data
Before you can start processing
all the economic data, you need to know where to find it. In my post “Understanding and Applying Market News, Data and Information: Sourcing Market Information”, we look in greater detail at where to find data info, but here’s a quick
overview.
The starting point is the economic
calendars typically provided by online forex brokerages. Be aware that not all
calendars are as comprehensive as others, so be sure to look for calendars that
show events and speakers and not just data. Also, look for a broker that
provides data and event previews, and real-time data and market analysis; this
type of commentary will help you get a sense of what the market is expecting,
how it may be positioned for the news, and how it’s likely to react.
Cable TV business channels such
as Bloomberg TV, MSNBC, and CNBC typically carry U.S. data releases live on
air, and they’re probably your best bet for seeing U.S data immediately. In my
opinion, Bloomberg TV does the best job of covering non-U.S. data releases.
In addition, Bloomberg.com, MarketWatch.com and Reuters.com provide excellent data coverage, both before and after it‘s' released, along
with event calendars. Read the economic data news stories on these sites to get
the inside story of the data reports, such as any subcomponent readings or
significant revisions.
