Fundamental Indicators

When it comes to fundamental analysis in the forex market, it is important to understand and recognize the fundamental indicators that go along with it. These indicators are things that traders specifically look at in order to get a better read on what the market is doing and what it might do in the near future.

As a forex trader, you will want to make sure that you keep up with most of these fundamental indicators, if not all of them. There are five major types of fundamental indicators which are economic, inflation, employment, consumer spending and leading indicators. Each one of these categories also has more specific indicators beneath them as well.

Economic Indicators

Economic indicators are measurements that are specifically based of a country’s economy. Trader’s continually keep up with these indicators through resources such as the internet or news releases that announce them. Knowing what an economy is doing and how it’s performing is necessary because it gives you an idea of that currency’s value.

These economic indicators include such things as the Gross National Product, Gross Domestic Product, consumption spending, investment spending, government spending, net trade, industrial production, capacity utilization, factory orders, durable goods orders, business inventories and construction data. All of these measurements are considered economic indicators and will help you with fundamental analysis.

Inflation Indicators

Inflationary data is something that forex traders watch very closely because they know that the preferred way of fighting inflation is to raise interest rates. In order to measure inflation, traders use specific indicators in order to analyze the inflation rates. The good thing for traders is that higher interest rates often give strength to local currency.

There are many different indicators that are considered to be inflation related and that are used throughout the forex market. These inflation indicators are as follows: Producer Price Index, Consumer Price Index, Gross National Product Implicit Deflator, Gross Domestic Product Implicit Deflator and Merchandise Trade Balance. These measurements are all used to measure a country’s inflation effects on the market.

Employment Indicators

The rate of unemployment is a significant fundamental indicator in many different ways. These indicators measure the solidity of a country’s economy. However, the rate of unemployment is considered a delayed indicator for trading forex. Since most people are looking at health and recovery of the working environment, employment becomes the last indicator to react.

Employment measurements are vital in the forex market and are taken into serious consideration during transitional periods of recovery and contraction. The two main employment indicators for forex trading are Nonfarm Payroll and Employment Cost Index. Both of these indicators help report employment throughout the country in question.

Consumer Spending Indicators

The consumer spending indicators are based off of data that is relative to the volume of retail sales. These indicators are significant in the forex market because they show the level of demand from consumers and their sentiment. This represents the initial data needed for calculating other indicators such as Gross National Product and Gross Domestic Product.

When it comes to consumer spending indicators, the higher they are, the better it is for that specific currency. The main consumer spending indicators that are being used in the forex market are retail sales, consumer sentiment and auto sales. Each of these represents its own consumer spending and gives indications for how a country’s economy is performing.

Leading Indicators

There are several indicators within the forex market that are considered to be leading indicators. Below we have listed several of these leading indicators:

  • Weekly average of state employment claims
  • Sales performance
  • Changes in prices of important materials
  • Weekly average production of manufacturing workers
  • New orders for consumer goods and materials
  • New building permits
  • Contracts and factory orders for products and equipment
  • Changes in the nondelivered factory orders and in durable goods

When it comes to these leading indicators it is important to remember that the higher these figures are, the better it is for that currency. The only one that you don’t want to be higher is the state employment claims, which means claims for unemployment. The higher these are, the worse it will be for the currency.