How to Use the Economic Calendar

An economic calendar is an important resource for FOREX traders despite the methodology they use to generate trading ideas. Whether an investors purely uses technical analysis or basis their trading ideas on interest rate differentials, economic data introduces new information into the trading equation and needs to be monitored to determine how it will affect a currency pair.

An important concept a trader should embrace when monitoring an economic calendar is determining which releases are likely to generate volatility, and which reports are largely ignored. The economic calendar page provides traders with a volatility gauge which shows up red when a release is considered likely to generate volatility and green when the release is likely to cause a subdued reaction. A yellow is color rating reflects medium volatility. Some of the more common releases that generate volatility are employment reports, GDP releases, producer and consumer prices, purchasing manager’s indices, industrial production, sentiment indexes, and most monetary policy or interest rate announcements from central banks. Additionally, reports that specifically can alter a commodity such as the weekly petroleum inventory report released by the US department of energy can generate significant volatility.

In addition to knowing the economic releases that generate volatility, a trader should be aware of the markets expectations of a specific release. For example, if an employment report is expected to show an increase of 200,000 jobs and instead it shows an increase of 500,000 the better than expected news is likely to generate significant volatility for that countries currency. With this in mind, a trader should have an idea of what he/she is interested in doing if a release shows a positive or negative surprise.

New information can alter the trajectory of a currency pair, so even traders who are technical analysts need to be aware of a release that could potentially change the outcome of their trade.