How to Use the Economic Calendar to Boost Your Forex Strategy

March 08, 2023 at 07:00 AM EST

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The forex market is the biggest financial market in the world, processing approximately $7.5 trillion worth of trades each day, which is 30 times larger than the daily global gross domestic product (GDP). According to the Bank for International Settlements (BIS) Triennial survey conducted in April 2022, market volatility has risen since 2019.

Given increased volatility levels and abrupt fluctuations in currency exchange rates amid increased geopolitical tensions, adopting a sound forex strategy is crucial to trade currencies profitably. Economic data releases are one of the biggest drivers of the forex market as they reflect the financial health of a country and key policy changes a government might take in the future that could affect the currency. Incorporating the economic calendar into a forex strategy increases a trader’s odds of booking profits.

What Is the Economic Calendar?

Economic calendars list dates when federal agencies release important economic data, such as inflation levels, unemployment rates and changes in the benchmark federal funds rate. These data releases make a major impact on the global currency market and are a necessary tool for every forex trader.

While macroeconomic data such as GDP is released quarterly, statistics like total jobless claims are released weekly.

Types of Economic Events That Happen in the Calendar

Some of the most important data releases mentioned in an economic news calendar are:

Purchasing managers index (PMI): Released by the Institute for Supply Management, the PMI is an economic indicator that reflects total economic activity and output. Measured on a scale of 0 to 100, a PMI reading higher than 50 indicates economic expansion, while a lower-than-50 reading indicates contraction.
Central bank meetings: The Federal Open Market Committee (FOMC) typically meets eight times a year to discuss monetary policy changes in accordance with the current economic conditions. FOMC minutes of meetings are perhaps the most important press release on the economic calendar for the forex market because changes to interest rates or other open market operations directly impact the U.S. dollar.
Inflation data, producer price index (PPI) and consumer price index (CPI): Traders follow the PPI and CPI as a barometer for inflation. These releases reflect the health of the economy and predict near-term changes in monetary policy. Soaring inflation levels since mid-2021 have caused the Federal Reserve to hike the federal funds rate eight times so far, impacting the U.S. dollar significantly. The greenback rose by nearly 8% last year, marking the biggest rise since 2015.
Employment data: This type of data includes jobless claims reports (number of people filing for unemployment insurance) released weekly and non-farm payrolls released monthly. These reflect the overall employment rate and average wages earned by workers in an economy. Total employment costs affect the inflation levels, which, in turn, impact the domestic currency.
Retail sales: Retail sales data demonstrates consumer spending levels in an economy. For a consumer economy such as the U.S., retail sales data forms one of the most important economic indicators as it accounts for nearly two-thirds of total GDP. A strong retail sales reading indicates economic expansion, strengthening the currency, while falling sales indicate potential contraction or recession, causing fiat currency to depreciate.

What to Pay Attention to as a Forex Trader

While numerous types of economic data are released every week, not all are equally important. While some cause temporary fluctuations in exchange rates that are reversed intraday, other key economic releases often trigger a bull or a bear run for currencies. Changes in monetary policy, retail sales and inflation data often are the biggest catalysts driving the forex market. Also, whisper numbers, which are projections released by analysts and economists, play an important role. Exceeding or falling short of these projections often causes currencies to fluctuate.

How to Trade Forex Using the Economic Calendar

Traders generally use the economic calendar to keep track of important data release dates to efficiently invest in the forex market. Knowing the market expectations by analyzing the whisper numbers matters too, as they reflect the general market trend. Usually, the impact of economic releases lasts for the first few days after an announcement, depending on the gravity of the report. For instance, slowing inflation data will likely have a bigger impact on the forex market compared to unemployment data in the current market conditions.

Trading Economic News to Boost Returns

The U.S. economic calendar is followed by most forex traders globally because it has the biggest impact on the currency market. The U.S. dollar is on one side of approximately 88% of all trades in the forex market. While trading economic reports might seem taxing, they can potentially maximize returns on your short-term forex strategy. Following government websites to know the exact release dates and keeping an eye out for unofficial market projections can help you effectively trade forex.

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