Most Forex traders use an economic calendar to stay informed with upcoming financial information and news events that can assist them in their fundamental analysis. Luckily, knowing how to read the Forex economic calendar is not a science rocket, but it’s a knowledge and skill you must have in Forex trading.
So, in this lesson, we’ll quickly show you how to read a Forex economic calendar and how to integrate it into your trading strategy.
A Forex economic calendar shows the scheduled economic data releases and news events related to the different economies around the world. It is used by traders and investors to evaluate future monetary policy decisions and the economic growth of countries and areas from all over the world.
Since FX currency pairs are most affected by monetary policy announcements and key economic events, these events obviously have a huge impact on the Forex markets. Moreover, as central banks like the Federal Reserve bank and the European Central bank are heavily involved in financial markets these days, it is crucial to know the next central bank meeting or the next speech from leading central bankers.
Basically, most Forex brokers and trading firms provide an economic calendar for retail investor accounts that covers all financial and economic events. Further, if you use the MetaTrader4, you can get an economic calendar plugin directly on the trading platform.
As we mentioned earlier, knowing how to read a Forex economic calendar is fairly easy. The events or economic indicators are listed on the economic news calendar, and you’ll be able to see all the economic reports that were already published on the same day and the upcoming news events that are likely to impact the prices of currency pairs in the Forex markets.
Moreover, you can go back and forward through different days and weeks to see previous data releases (as seen in the image below).
Each economic event contains the following information:
Keep in mind that most Forex economic calendars also provide a short explanation of the event and its impact on the markets. Also, in most calendars, the actual data will be marked in red or green based on the result. If the actual data is in green, that means the result is better than expected, and if the actual data is in red, then it means the result is worse than expected. In a nutshell, most traders are looking at the actual versus forecasted values to determine their next trade.
As such, if you see a data release that is better than the expectations, then you are likely to see the respective currency increase in value versus other currencies. However, while this assumption is valid and true in theory, you need to remember that this is not written in stone, and the currency pair price may fluctuate to both sides before taking a direction.
What’s more, as we mentioned in the previous lesson, in many cases you’ll have to keep an eye on economic data revisions. That is because the data is being revised very often and usually the revised figure is published in the following month. These revisions have a significant impact on price movements in the Forex market and in some cases are more important than the released news event.
Bear in mind, however, that this information is not included in the economic calendar and you’ll have to find other sources to know the exact revised number (either Forex and financial news sites or the official site of the organization that releases the data).
When you are looking at economic events, you are likely to see a time measurement next to the economic event. This could be quarterly data (Q1, Q2, etc), monthly data MoM (month on month), or yearly data YoY (year over year data).
Ok, so you look at the economic calendar every day and you see lots of irrelevant economic events that actually disturb you. I mean, some calendars include all countries and you just want to get the economic data for the currency pairs you want to focus on. Luckily, many of these calendars enable you to customize your Forex calendar to the markets and economies that are relevant for you.
To customize your calendar and view the most important events for your Forex trading, you’ll need to search for the Filter button. Then, you can set the Forex economic calendar so it shows you news and events coming out from the countries and zones you wish to focus on.
As you can see in the image below, the settings have been changed and the economic calendar will now show you financial events from the 7 chosen countries only.
Another useful feature used by many Forex traders is to remove low-impact events from the calendar. In order to set this feature, you are required to click on a tab or a button on the economic calendar menu (as seen in the image below).
Generally, Forex traders try to predict the next monetary policy decisions by different central banks and thus, need to follow the economic growth of various countries. For that matter, some of the most important news events published on economic calendars include interest rates decisions, gross domestic product (GDP), consumer price index (CPI), consumer confidence index (CCI), unemployment rate, NFP, trade balance, central banks meetings, etc.
In terms of how to trade economic events – There are essentially two basic methods when trading Forex currency pairs during and after economic news releases. The first is to trade in the direction of the economic release, which means that if the actual data differs from the market expectation and the previous figure, you take a position based on that number.
For example, if the Non-Farm Payrolls came out better than expected, you’ll immediately enter a position buying the US dollar versus any other currency.
The second strategy is to wait for several minutes (usually 15-30 minutes), analyze the data, and enter a position when the price of the currency pair takes a direction. This way, you might ‘lose’ the spike and market volatility following the news release, however, you can maintain a more effective risk management system.
No matter what your trading strategy and what currency pairs you want to focus on in your Forex trading, you will find it useful to keep an eye on upcoming financial events on a daily basis.
Whether you are going to use fundamental or technical analysis as your trading strategy, or both – having an economic calendar web page open is a must-have tool for a Forex trader. And knowing how to read and analyze economic news events on an economic calendar is the first step in evaluating the strength or weakness of a certain economy and its currency value
For those who plan to trade the news and focus on fundamental analysis, an economic calendar will definitely help you find triggers to enter trades in the Forex market. So… open an economic calendar page and start using it. And, if needed, we are here to help you with any questions you have.