Grasp the Market by Monitoring Economic Events - A Guide for Forex Traders

In the world of forex trading, one of the indispensable tools that every trader must know how to use is the economic event calendar. Just spending a few minutes each day checking this calendar can provide benefits that may determine the success or failure of your entire long-term trading strategy.

What Is an Economic Calendar?

An economic calendar is an information tool that provides schedules of official announcements regarding financial, economic, and political events that could influence asset prices or the market as a whole.

Events such as the release of new GDP figures, central bank interest rate decisions, or regular meetings of international financial organizations (such as the ECB) are detailed in the economic calendar. These events are often published weekly or during peak periods of the year.

The economic calendar is updated multiple times a day, helping traders stay informed with the latest information. Investors and traders use this tool to develop trading plans, allocate capital wisely, and predict the impact of upcoming events on the price charts of specific markets, thereby making informed buy or sell decisions.

How to Use the Economic Calendar in Forex Trading

When you open an economic calendar, you’ll see information organized by chronological order, country name, event name, importance level, previous cycle value, forecast, and current actual value.

Each economic event is assigned a different weight depending on its potential impact:

• Low or One Star: Small events with limited market impact
• Medium or Two Stars: Events likely to moderately influence price fluctuations
• High or Three Stars: Major events capable of causing significant market volatility

Notably, each country has a different level of importance on the global stage. The United States leads in the volume of global currency trading, so economic announcements from the US will have a profound impact on the forex market, even affecting currency pairs not directly related to the US dollar.

Most Important Economic Events on the Calendar

There are two types of economic events you need to distinguish:

Leading Events: These are major economic and financial policy events used to forecast future market directions. Examples include the Retail Sales Index (Retail Sales Index).

Lagging Events: These are indicators that reflect past occurrences, released after market trends have been established. Examples include unemployment rates.

Key Indicators You Must Follow:

• GDP (Gross Domestic Product): Measures the overall economic value of a country
• PMI (Purchasing Managers’ Index): Reflects manufacturing activity and significantly impacts the market
• Interest Rate Decisions: Changes in central bank interest rate policies
• Non-farm Payrolls (Non-farm Payrolls): Employment data from the non-agricultural sector
• Annual Monetary Policy: Major policy directions from central banks

Moderate Impact Indicators:

• Unemployment claims and unemployment rate
• Consumer Confidence Index (Consumer Confidence Index)
• Current housing price index
• Durable Goods Orders (Durable Goods Orders)

Lesser Impact Indicators:

Factory orders, hourly wages, federal budget balance, and many other indicators.

Benefits of Using the Economic Calendar

The economic calendar focuses on publishing financial and economic reports from countries. These events can reflect the current situation or serve as forecasts for the future.

By monitoring the economic calendar, traders can:

• Make more accurate market predictions
• Detect and capitalize on potential trading opportunities
• Manage risks more effectively
• Plan long-term trading strategies

On the forex trading platform, you’ll often see traders placing large orders around the time of major event announcements or just before these reports are released. Traders with a “Short position” (short selling) strategy particularly benefit from accurately predicting price movements after announcements—they can open positions before the news and close them a few hours after the release to realize immediate profits.

How to Analyze Data from the Economic Calendar

When analyzing data from the economic calendar, traders typically compare three factors:

1. The current actual value of the indicator
2. The previous cycle/month value
3. The market’s forecasted value

By synthesizing these three figures, you can predict whether the economic event will have a positive or negative impact on the market, providing a basis for your next move.

Some traders use the economic calendar to monitor announcements that influence specific currency pairs over very short periods. They can detect price movements faster and react more quickly than other traders.

When you know an important announcement is upcoming, the first step is to assess its potential impact and volatility relative to your current positions. Depending on the situation, you may choose to expand your position or set stop-loss orders to protect profits.

Conclusion

Those who have early information and can accurately forecast are the ones who can achieve sustainable profits in the forex market. Monitoring the economic calendar is not just a tool but a vital skill that every professional trader must master.