Fundamental analysis is a practice of primary importance for those who engage in Forex Trading. It consists of studying the events that occur outside the market with the intent of predicting price trends. A significant portion of these events consists of the publication of
macroeconomic data which, as is easily understood, considerably influence prices.
The events are numerous as they involve fundamental parameters such as GDP, inflation, trade balance, sales, domestic consumption, industrial production, and so on. The novice trader can quickly find themselves disoriented. The questions they typically ask are twofold:
where do I find them? How do I distinguish important data from less important data? This question, in particular, is justified by the fact that even at a glance, analyzing
all the events appears impossible.
Here is a small guide regarding the "management", rather than the analysis, of macroeconomic data.
Where to find macroeconomic data
In this case, there are two initiatives to take. The first is to consult the economic calendar.
The economic calendar is nothing more than the daily agenda of events that, in one way or another, can influence the market. There are numerous websites that provide the economic calendar. Just to name the most useful ones:
ForexFactory, Investing, and TradingEconomics. All of them present the list of events, an indication of the nationality of the event (e.g., next to the "ECB interest rate announcement" there will be the flag of the European Union), the degree of importance with a rating from one to three, the data from the last survey, and analysts' estimates. The two sites work in the same way, but ForexFactory tends to give importance to events that somehow influence the dollar while Investing, in its Italian version, gives space to European events.
The second initiative to take is to view the data directly from their source, not from the economic calendars but on the websites, if available, of the institutions that publish them. This can be useful to read collateral data that, for reasons of space or the need for synthesis, do not appear in the economic calendar. One could, for example, consult the meeting minutes and official press releases to analyze interest rate data with even greater attention.
How to verify the importance of a macroeconomic data point
As already mentioned, the events are truly numerous and the amount of data is truly impressive. Therefore, it is necessary to proceed with a selection. Consequently, it is necessary to distinguish important data from less important data.
The most important discriminating factor concerns the
underlying economy of the currency pair being traded. If you trade with the euro-dollar, it is evident that the trader should look at data involving the US and European economies. A second discriminating factor concerns the
type of influence on prices, which can be direct or indirect.
Some data, such as interest rates and trade balance, directly influence prices as they act on the money supply. Others influence it very directly, with mechanisms that mainly involve investor confidence. This is the case, for example, of GDP.
It should be said, however, that some events are important regardless of the currencies being traded. The reference is to the FED's announcement of interest rates. Changes in the cost of the dollar generate a domino effect that, in the long run, involves all existing economies and therefore, more or less indirectly, influences all currencies.
