Interpreting the Economic Calendar

No matter what class or how you’re interested in trading – whether it be binary option, forex, individual stocks, bonds or equity indices – an awareness of the economic calendar is a must for anyone involved in trading the financial markets.

The economic calendar can be found through any leading broker website / platform. It consists of any economic news due for release for the period ahead, and usually interpreted on a weekly basis for an essential head start. The fundamental information configured from the analysis of this calendar, provides insight into why an instrument may be set to behave in a particular manner.

For example, should you be trading a currency pair and have a bullish EURUSD technical analysis setup, then a fundamental reason for the pair to move on the upside is imperative. Further evaluation of the economic calendar for the upcoming week may be able to give you the explanation as to why the pair might move.

Along with upcoming economic events and the speculation of any releases, the calendar also considers press conferences or speeches that Central Bank members are holding. Central Banks are at the forefront for the regulation of inflation and general price stability. Thus, all of these factors directly influence the market and suggest how a trader can move.

For instance, if the economic calendar were to show a US dollar event scheduled (such as any from the FOMC – Federal Open Market Committee, or any NFP – Non-Farm Payrolls releases), the smartest thing to do in order to avoid high volatility would be to trade minor pairs (those without the US dollar as a component).

How to Read the Economic Calendar

Interpretation of the economic calendar is pretty straightforward. Simply locate the calendar through your broker website, platform, or independently online. Usually this feature tool is organised into user-friendly categories and columns, and conveniently arranged according to the scheduled release of the next key event. All calendars will feature a key for signifying the importance of each event. Commonly this is shown as colours; with red assigned to the most important, and orange, then yellow to signify less consequential events.

I would suggest the most important of these red events are certainly those marked by any Central Bank meetings and subsequent press conferences. In addition, CPI (inflation), GDP (Gross Domestic Product), Retails Sales and the PMIs (Purchasing Manager Index) are pivotal in understanding what moves a market when economic events are due for release.

There is always a previously listed release upon which economists / analysts base their forecasts and speculations, followed by an interim wait for the upcoming release. If the release news surpasses forecast expectations, then this will have a positive effect on that particular currency / stock. In other words, if the employment rate for the United States is better than speculated, the economic news should be positive for the US dollar, and this would therefore be influential when trading a US dollar denominated product.

Calendars will update to display the difference between forecasted and actual trend data once the release time has passed.

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