Explaining the Economic Calendar
Video Transcription: Explaining the Economic Calendar
Hello again, this is topratedforexbrokers.com, and we continue our trading academy project with one of the most important things in fundamental analysis and in FX trading. This is the economic calendar. This is the reason why the Forex market moves. This is the Forex Factory which I have nothing to do with, it only represents a free way to look at the economic calendar.
(0.30) But as a matter of fact, you can simply google the economic calendar, and you will find out that it is offered by various other websites and by different forex brokers. All this information is freely available, so there’s nothing to hide.
(0.51) What I would like to do here is explain the concept and how to use it when it comes to forex trading, namely these specific areas.
(1.02) First of all, the date. You’ll see that today is Sept 29th,(note to voiceover – he circles the date on the left side) and these are the economic events for today. But if you click on this arrow, I won’t actually click it, but if you click on the arrow, you will go to the next day of sept 30th and then October the 1st, or you can choose to see all the economic events in the next week.
(1.23) We already know what these events will be. You can not be taken by surprise by these events. It could happen that you didn’t know, but that would only be due to you being un-prepared. So by the time that you select the date here, (note to voiceover – he circles the date) Friday, September the 29th. You can also select the time here (circles 1am)
(1.50) This is the US time, and this was the exact time that the economic news hit the wire. Then you have the currency from the currency dashboard. This is the currency that will be affected by the economic news.
(2.06) For example. Look at the Japanese yen for this year. The housing starts and housing dealing, in general, is a very important economic release. If you don’t believe me then just remember what happened in 2008 with the financial crisis in the United States which started from the housing sector. Therefore it tells us a lot about the health of the housing market, of the construction sector and all the vertical and horizontal industries that develop in relation and so on.
(2.38) And so it gives traders an educated guess about the state of their economy. We also have German retail sales that will affect the Euro or the nationwide HPI, and this will affect the GBP and so on. If you do not know what the economic news means or how to interpret it, this is not a problem; you do not need to have a PhD in Economics or anything else.
(3.08) Simply click on the detail and find out more. For example. Nationwide HPI in the United Kingdom. What is this? This is the nationwide building society it measures the change in selling price in homes for Mortgages backed by Nationwide. The “usual effect” on the FX market and that currency being the great British pound.
(3.34) Now the “usual effect”. If the “actual” is greater than the “forecast”, this is good for the currency. Now let’s step back a bit. What does it mean by the ‘actual being better than the forecast’? Ahead of an economic event, you have these three columns.
(3.55) The actual, the forecast, and previous. This is the previous release. For example, the Nationwide HPI – M/M means it is released monthly. So in the previous month, the release was minus 0.1%.
(4.15) The forecast value is made by researchers, a pool of economists, or data companies that do research. They ask economists in various companies about the state of the business and they can then forecast a value.
(4.41) The forecast is 0.1%. So when compared with minus 0.1% one month ago. Today’s release was supposed to come in at 0.1% This is the old data (he highlights ‘-0.1%) this is the expectations (he highlights 0.1%) and this represents the “actual data”.
(5.05) If the “actual” is greater than the “forecast”, then this is good for a currency. What does this mean?
Step back and go to the video explaining the terminology in FX trading. Good for currency means Bullish. What does that mean? Bullish means we want to go long, and we want to buy GBP. Against what? A different currency that you may consider weaker.
(5.32) This is 0.2%, and the actual is a better outcome than the forecast. When you compare minus 0.1, 0.2, then is fairly good economic data for the GBP. The fundamental elements are sound for the higher GBP.
(5.54) Now if you go to the FX market today and you check the GBP’s reaction, you will see that it actually moved lower, not higher. You might think this is rubbish, but it is not. The economic calendar tells you in advance, the importance or the impact of specific economic news; There is a colour code here. (scrolls down the economic column)
(6.19) News in yellow like this nationwide HPI month over month, can be ignored. This is third-gear data. It doesn’t really matter.
(6.35) News in orange is far more important. ‘Final GDP’ in the UK, ‘Net Lending to individuals’ in the UK. The news in Red are the ones that truly move the market.
(6.53) And this is the reason that the GBP moved to the downside, because of the current account which performed terribly. In the previous month, it was minus 22.3 billion and then it was minus15.8 and then minus 23.2. And not to mention the final GDP and so on and all repercussions against it.
(7.22) But you have all the information on the economic calendar. Let me show you the Economic News. It’s supposed to happen at 11.00 am; see this green arrow.The FOMC (federal open market committee) member Harker, gives a speech. Why? The FOMC members vote the interest rates on world reserve currency. This interest rate is everything for the FX market.
(7.55) If you want to find out more details then you simply click the details tab and then you find out that this guy is due to speak about the economic outlook and financial technology at the Fintech conference hosted by the federal reserve bank of Philadelphia.
(8.14) “Audience questions expected” and you don’t know what will be asked, and you won’t know what the answers will be. It may move the market, or it may move the dollar. It is highlighted here with the orange colour which is fairly important, so it matters for the overall FX market.
(8.36) Then you will have the Chinese data, manufacturing PMI and non-manufacturing PMI. Manufacturing PMI is like the ISM manufacturing in the United States or the non-manufacturing ISM in the United States. The previous data is 51.7, and it is forecast to move to 51.5. And then, when the actual comes, we can trade.
(8.59) If the actual beats expectation, or if it doesn’t beat expectations. A very good question here would be. Who cares? Because we can not trade the Chinese Yuan. This is true. But China is the world’s biggest manufacturer, and demand from China for products, starting with Oil and ending with commodities and with everything you can imagine. That demand influences other major currencies that we can trade.
(9.35) An example is the Australian Dollar. Over 30% of Australian exports go to China. If China sneezes, the entire Australian economy will catch a cold. I can guarantee you that if this data, for example (hovers over 51.5), goes to 42 on Sunday when the markets close, then on Monday, you will see the Australian dollar moving low because traders will place their bets on expectations.
(10.07) To sum up, you will find out more details on the article that comes with this video. Concrete details regarding the most economic data. I wanted to better explain how to read the economic calendar and why the Red news is the one that matters.
Trading financial markets in general, and the Forex market in particular, is subject to paying attention to detail, both from a technical and a fundamental point of view. It is said that technical analysis shows the direction in which price is moving, while fundamental analysis shows the reason(s) the price is moving. These reasons are mostly economic events or news items that are known in advance, and therefore traders can adapt to their release, adjust portfolio, strategies, etc. The economic calendar is something that must be part of any trader’s toolkit, as it shows the potential outside factors that will influence the market. This calendar is available for free, and can be found with a simple Internet search. Most of the Forex brokers offer it on their websites as well, as there is no secret as to what economic news will be released and when.
Interpreting the News
The news that is making the economic calendar is known in advance and is repeated over and over again. Some of it is released monthly, and some on a quarterly or even yearly basis, and it refers to a specific economy. After all, trading the Forex market means buying or selling a currency pair, and the currency reflects the strengths or the weaknesses of an economy. At the end of the day, what a Forex trader is doing is comparing two economies (represented by the two currencies that form a currency pair) and making a trading decision based on the outcome of his/her analysis. As a rule of thumb, the stronger an economy is, the stronger the currency should be. This is an understatement though, as monetary policy is a bit more complicated than that. Speaking of monetary policy, all the economic news that is released, and can be seen on the economic calendar, is constantly watched and monitored by central banks before they set the tools that define the monetary policy. Based on this monitoring, interest rates are set.
Explaining the Calendar
The economic calendar looks like the picture below. This is the basic information that is offered by default when the calendar is accessed for the first time.
Obviously, the first column represents the date or the period under consideration. In the example above, this is a Tuesday, the 22nd of November. Moving forward on the right side of it, there is the time column. These are the exact moments of time during the trading day at which the news is released. Because of the high-frequency trading that governs the way markets are moving these days, the time the news is released is extremely accurate, by the second. In the picture above, the time is set based on North American input, but it can be changed to display any timezone. If you pick the news on the 08:30 column, the Core Retail Sales in Canada, it will be released at 08:30 in the morning, US Eastern Time. The next column shows the currency the news is referring to, and the currency that is most likely to be affected by the news. The currency, as stated earlier in this article, represents an economy, so the news refers to that specific economy. Using the same example from above, the Core Retail Sales in Canada will impact the Canadian Dollar (CAD), so traders who are interested in buying or selling a currency pair that has the CAD in it (like USD/CAD, or AUD/CAD, etc.) are aware that this news will impact the currency pair, and the market will move more aggressively than it did prior to the news being released.
Using the Colour Code
The economic calendar comes with a colour code that is valid for any source you’re using to display the news. This code comes in three colours:
- Yellow represents news that is not that important from a volatility point of view. This news is most likely not going to have a big impact on the way a currency is moving.
- Orange signifies second-tier news. This news might change quotations, depending on the actual values released when compared with the forecasted value.
- Red news is the news that matters. Markets will move aggressively on such releases, as trading algorithms will buy or sell a currency pair in the blink of an eye when these important events hit the wires.
The next column shows the name of the actual news that is released. Also on this column is indicated the period that the news takes into consideration, such as whether it is monthly news (m/m), or quarterly (q/q), etc.
The Detail column is extremely important. By clicking the box that appears in that column, a new window will open with a description of the news. This description will briefly state what the news is about, how a currency should react based on it, and other relevant data.
Following the Detail column, there are three others that highlight the following sets of data: actual, forecast, and previous. As the name suggests, actual refers to the actual value of the data that is released. The previous one is the data that was released last time, so if the news is released monthly, that column will show the last month’s data. The forecasted value is based on an estimate that is deducted from a poll. Economists are interviewed and asked to state the forecast for that data based on various factors, and the average is posted in that column. The actual data refers to the value that is about to be released. It goes without saying that the market will react strongly when the actual data differs from the forecasted data. The bigger the difference between the two, the more powerful the move the market will make.
Back to the Detail column: By clicking that small box, traders have access to historical data as well. This set of data can be compiled in a chart, or used in multiple other ways to form an idea about past trends. In this way, the data can tell much about the way the economy is moving, and is a valuable source of information for the Forex trader. Using the same example as before, let’s put all the information stated here in one statement:
On Tuesday, the 22nd of November, at 08:30 am ET, the monthly Core Retail Sales in Canada will be released. Prior data was 0.0%, and it is forecasted to come at 0.6%. If the actual beats expectations, the CAD will catch a bid against other currencies, while if the actual misses, then the CAD’s reaction should be a dovish one. This is how the economic calendar should be interpreted, and the same approach is valid for every news release.
Other educational materials
- Double and Triple Running Flat – The Most Powerful Corrective Pattern
- The Waterfall Effect – Using Fibonacci to Find Targets
- Patterns with Failures – What Are They and Their Implications
- Overlapping Between Corrective Waves
- How to Use the Golden Ratio in Complex Corrections
- Introducing Double and Triple Flats
Recommended further readings
- “Turn‐of‐Month Evaluations of Liquid Profits and Stock Returns: A Common Explanation for the Monthly and January Effects.” Ogden, Joseph P. The Journal of Finance 45, no. 4 (1990): 1259-1272.
- “Calendar effects in monthly time series: detection by spectrum analysis and graphical methods.” Cleveland, William S., and Susan J. Devlin. Journal of the American Statistical Association 75, no. 371 (1980): 487-496.