What Is The Forex Economic Calendar And How To Use It?

When trading forex online, the economic calendar is considered as an important fundamental tool. The purpose is to demonstrate news statistics, and it is simply necessary to focus on it while trading.

The economic calendar publishes macroeconomic indicators and announces important events in the world of economics and finance, such as meetings of central banks, economic conferences, summits, and so on.

All events are categorized into three types as per their impact:

  • High impact
  • Medium impact
  • Low impact

Naturally, the events related to the high impact category are more frequently used. The rest are not always considered as important, and traders often just skip them. In principle, this is correct, because monitoring all events is very difficult, and you need to filter them. A modern calendar of economic news allows you to do this without any hassle. I would personally prefer to be aware of all news releases regardless of the impact.

What data is published in economic calendar?

The most important macroeconomic data comes out here. First of all, this concerns the pace of economic growth, inflation, indices of business activity, unemployment and so on, and all this data can help with your analysis when trading forex online. But you need to know how to do it.

  • Suppose core CPI data of the United States is expected to release. If the figure released is above the forecast, this could lead to an increase in the price of US Dollar. Contrarily, if the figure is negative, the currency price could drop.
  • Employment data is also a high impact economic event. The fact is that higher the unemployment rate, the worse is economic condition of that country. Therefore, it can be considered as one of the major economic indicators.
  • The unemployment rate is considered important for any country. For example, the Fed has targeted unemployment rate below 5% to reduce its quantitative easing program.
  • Finally, it is important to pay attention to meetings of central banks. These events are key to the currency. If monetary policy conditions are revised, the currency may rise or fall.

How to trade on the news and what to pay attention to?

Any economic calendar has certain parameters. First of all, you should pay attention to the currency to which the news relates. In principle, there is data on almost all the major currencies. In the traders’ economic calendar, they are indicated either by country flags or currency symbols (for example, EUR, GBP, USD).

It is important to pay attention to the time at which the data is published. Indeed, in this way you will be aware of when exactly to trade or, conversely, not to trade a certain currency. You can set the time zone in calendar yourself.

Further, it is worth paying attention to three indicators – the previous figure, the forecast and the current value. Before the release of a particular economic data, you can only see the previous value and the forecast from experts (most often from Bloomberg). Accordingly, even before the news release, you can compare the forecast and the previous value and draw certain conclusions.

Forex Economic Calendar
Forex Economic Calendar

News trading example

Let’s take an example trading US non-farm payroll data that released on 3rd April, 2020.

Economic Calendar Nonfarm Payrolls (NFP)
Economic Calendar Nonfarm Payrolls (NFP)

The data came worse than expected as unemployment rose from 3.5% to 4.4% while non-farm employment change also went to -701k from -100k expected. However, the average hourly earnings came out slightly better than expected at 0.4%.

Let’s look at the USD/JPY pair for trading the event. As the data came out with a negative outlook, we would look to take a short sell entry in the pair. Look at the chart below:

Economic Calendar News Trade USDJPY Entry
Economic Calendar News Trade USDJPY Entry

The red arrow is 5-minute candle closed at the time of data release. The green horizontal line shows the entry point.

Economic Calendar News Trade USDJPY Exit
Economic Calendar News Trade USDJPY Exit

The red horizontal line in above chart shows the exit point of trade. It was chosen as the exit price based on the recent support.

Remember, trading around the news can be very volatile with rapid price movements which can lead to slippage and spreads that are wider than usual. I would always prefer to use an ECN forex broker for the best possible trading conditions.

Important aspects to consider when news trading

If trading is carried out on the news, then attention should be paid to those market events that are marked in the economic calendar, especially those which are high impact.

When publishing any statistics, it is necessary to analyze the data of the current value and estimated value (forecast). Quite often, even positive figures lead to negative dynamics in the assets if they turn out to be much worse than the expected value. Therefore, the market is far from always in a logical and consistent way to publish statistics.

So, now you know what the trader’s economic calendar is and why you should use it.

As we have already noted, even if you do not trade on the news, this tool will be useful for you. Therefore, I do not recommend neglecting it.