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Explaining the Economic Calendar

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.

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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.
Explaining the Economic Calendar-1
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:

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.

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Economic Calendar Explained
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