The forex markets incorporate all the available information into the value of an exchange rate. When new information becomes available, market participants will buy and sell currency pairs adjusting the exchange rate. New information can become available 24-hours a day, driving an exchange rate higher or lower. While many pieces of data are unexpected, several key pieces of information are released on a regularly scheduled basis. One of the best ways to trade is to keep abreast of new information. You can do this and track information including monetary policy releases, economic data reports, and government and agency information through a forex economic calendar.
What is the Economic Calendar?
An economic calendar is a calendar of events, that tells you when a report is scheduled to be released. Important reports such as the employment report, retail sales, GDP as well as monetary policy releases are reported on an economic calendar. An economic calendar is broken down by date as well as time. Some data points come out at a regularly scheduled time, while others can be in a range of times so the actual time is not listed on the date that the release is expected to occur. Many economic calendars provide several pieces of information which include:
- The importance of the data point
- The prior actual release
- The consensus estimate
- Potential revisions
Evaluating the Data on the Economic Calendar
The key features can help you determine which are the most important pieces of information that are scheduled to be released during the week. Generally, the date of the release is highlighted, along with the time it is expected to be announced. Economic data is generally detailed. The figures that are released are usually on a month over month as well as year over year basis. Some economic data is reported quarter over quarter. For example, GDP in the United States is a quarter over quarter and year over year report. Some economic calendars allow you to drill down and see a detailed description of the economic release.
Importance of a Release
Another feature of an economic calendar that is often used is a label that describes the importance of the release. If the release is important and market-moving the label might say “high”. If the release is moderately important the label might say “middle”. If the release is somewhat important it might be labeled “low”.
The Actual Figure
After an economic report or a monetary policy announcement, the economic calendar will post the actual release. When a report is released the actual figure will immediately be added to the economic calendar. You will quickly be able to see what has been reported and then be able to compare the actual release to the consensus estimate.
Consensus Estimates
Next to the actual release on the calendar, you will usually find a column where you can see the consensus estimate of the release. This is the most important piece of information on the calendar. The reason is that this information is what is priced into the exchange rate of a currency pair. When the information is reported, traders will measure the release relative to the consensus estimate. If the information is off, a currency pair will move to reflect the new information. For example, a US Non-Farm Payroll number is much stronger than expected, US yields might rise and the dollar will move higher. The reverse would be true if the US Non-Farm Payroll number was weaker than expected.
The Prior Information
Some economic calendars also will show you the prior release. This figure will be listed to give you an idea of what was reported in the month or quarter prior. Many times a prior figure will be revised. Once the report is issued, if a prior figure was revised it will show up in place of the prior figure. A revision to a prior figure can be just as important as a release of an economic report where the actual figure is different from the consensus estimate. This is because a revision provides the market with new information that was probably not expected and in some instances, it can be market moving.
How to Trade Using an Economic Calendar
The economic calendar provides you with information that is timely and can alter the trajectory of a currency pair. There are several ways that you can use an economic calendar to trade the forex markets. You might consider taking a position before a release because you feel like the consensus is too low or too high. You might also consider taking a position once a report is released and the new information becomes available. Generally, price action will be volatile in the immediate aftermath of an economic release. It’s best to wait for the dust to settle and then take a position if you believe that the new information will generate a larger move than is currently incorporated into the value of an exchange rate. If you are convinced that that the new information will change the future value of a currency pair you might consider placing a forex trade using the Rakuten Securities Australia trading platform.
The Bottom Line
An economic calendar is a tool that can be used to help you keep abreast of new information that is expected to impact the forex markets. The economic calendar can show:
- The Information that is scheduled to be released
- The date and time of the release
- The importance of the release
- The actual release
- The consensus estimate
- The information from the prior report
An economic calendar can provide you with detailed information about each report. You can also use an economic calendar to trade the forex markets by anticipating that the data will be different relative to the consensus or by trading after the information is released. You should be cognizant that the forex market will be volatile after an important economic release. Another way to trade the forex markets is to wait for an economic report to be released and then once the dust is settled, use the new information to place a trade.