Employ Economic Indicators to Trade Forex in the US Market

LONDON, February 24, 2012 /PRNewswire/ --

Forex trading is one of the most widely traded markets in the world while all the major currencies typically trade against the US Dollar (USD).

As one of the largest and most liquid markets, the Foreign Exchange (often referred to as Forex, retail forex or simply FX) market is also one of the most accessible.

Whether after short-term volatility or long-term price trend, you can trade FX based on fundamental analysis.

Fundamental Analysis

If you use fundamental analysis to view an economy, you'll likely be looking closely at its currency through economic statistics, which depict a particular sector of an economy as well as the economy as a whole.

However, as there can be so many different pieces of data to digest, different statistics may point in opposite directions; giving the impression that one area of an economy may be growing while another falters. Alternatively, the importance of one industry can decline whilst another rises. As such, you may want to consider assessing which indicators give a stronger reflection of the strength or weakness of an economy, and give greater focus to those indicators, as part of your fundamental analysis.

Many statistics are also retrospective, telling you what has already happened, but not necessarily what is to come.

Economic Indicators

An economic indicator is information amassed and published by a government or private entity recording the activity in a particular economic sector, either in a specific industry or in an entire economy.

Whilst a majority of the indicators are statistical, they can sometimes be unreliable, subject to revisions and subjective as well. Classified as 'leading' or 'lagging'; leading indicators are those that track economic factors and projections whilst lagging indicators record activity that has already taken place.

Traders use these indicators, which are recorded and published on a regular basis by many organizations, to assess an economy's:

• Strengths and weaknesses
• Predict its future activity
• Judge central bank monetary policy

And finally, to provide insight into the many economic variables that form a modern industrial economy.

Economy-wide indicators are among the broadest measures of industrious activity and attempt to record the result for an entire economy.

Usually collated by governments, they are among the major statistics.

Examples are:

•     Gross Domestic Product (GDP)

•     Consumer Price Index (CPI)

•     Producer Price Index (PPI)

•     Unemployment Rate

Statistics focused around industry and sectors generally relate to a particular industry, such as housing or retail sales.

Collated by government agencies and private sector groups, the activity they track is limited in comparison, and can have a close association to broader indices, potentially generating considerable trading interest.

Examples are:

•     Durable Goods Orders

•     Housing Starts

•     Building Permits

•     New Home Sales

•     Retail Sales

•     Purchasing Managers Index

•     Institute for Supply Management (ISM) Survey

Summary

Traders may also focus on different statistics depending on what is felt to be more pertinent to current economic and market conditions. Find out more about trading Forex using Economic Indicators with FX Solutions: http://www.fxsolutions.com/learn-to-trade/using-fundamental-analysis.aspx

Forex trading involves a substantial risk of loss and is not suitable for all investors.

About FX Solutions:

FX Solutions, LLC is a leading foreign exchange broker with a focus on advanced trading technologies, transparency of transaction and unparalleled customer service. FX Solutions serves retail clients institutional trading partners and introducing brokers in over 100 countries.

For more information, please visit http://www.fxsolutions.com/