Explaining the Economic Calendar
Trading financial markets in general and the Forex market is subject to paying attention to details, both from a technical and a fundamental point of view. It is being said that technical analysis is showing the direction where price is going, while fundamental analysis is the reason for why the price is moving. These reasons are mostly economic events or news 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 is showing what are the potential outside factors to influence market. This calendar is available for free and can be found out by a simple Internet search. Most of the Forex brokers are offering it on their website as well, as there is no secret as of what economic news will be released and when.
Interpreting the News
The news that is making the economic calendar are known in advance and they are repeating over and over again. Some of it is released monthly, some on a quarterly or even yearly basis, and they refer 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. In the end, 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 being watched by central banks and monitored before setting the tools that define the monetary policy. Based on this, interest rates are being set.
RECOMMENDED FOREX BROKERS
|Broker||Min Deposit||Regulation||Bonus||Read More||Visit Site|
|XM||$5||CySec||100%||Read Review||Visit Broker|
|XTrade||$100||CySEC||60%||Read Review||Visit Broker|
|HYCM||$50||FSA||$5000||Read Review||Visit Broker|
Explaining the Calendar
The economic calendar is looking 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 that date or the period considered. 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 that the news is released. Because of the high-frequency trading that is governing 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 America input, but it can be changed in such a way to display any time zone. If pic the news at the 08:30 on that column, the Core Retail Sales in Canada, it will be released at 08:30 in the morning, US Eastern Time. The next column is showing the currency the news is referring 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 is referring to that specific economy. Using the same example from above, the Core Retail Sales in Canada will impact the Canadian Dollar (CAD) so traders that are interested in buying or selling a currency pair that has the CAD in it (like the USDCAD, or AUDCAD, etc.) are aware that this news will impact the currency pair and market will move more aggressively than prior to the news being released.
Using the Color Code
The economic calendar is coming with a color code, that is valid from any source you’re using to display the news. This code comes in three colors, with the following explanation:
– Yellow represents news that is not that important from a volatility point of view and this news is most likely not going to have a big impact on the way a currency is moving.
– Orange shows second tier news, and this news might change quotations, depending on the actual released when compared with the forecasted value.
– The Red news is the ones that matter. Markets will move aggressively on such releases as trading algorithms will buy or sell a currency pair in a blink of an eye when these important events are hitting the wires.
The next column shows the name of the actual news that is released. Also on this column, it is indicated the period that the news takes into consideration, like if it is a monthly news (m/m), a quarterly (q/q), etc. if it is the case. 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 that column, there are three ones that highlight the following set of data: actual, forecast and previous. Like the name suggests, this is referring 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 being interviewed and asked to state the forecast for that data based on various factors, and the average is being posted on that column. The actual data is referring to the value the is going to be released. It goes without saying that market will react strongly when the actual data is differing from the forecasted one. 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. This way, the data can tell much about the way the economy is moving and it is a valuable information for the Forex trader. Using the same example as before, let’s put all the information stated here in one statement. That means that 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 will beat expectations, the CAD will catch a bid against other currencies, while if the actual will miss, 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.