Economic Figures

Take advantage of all this fundamental data in one place. Go deeper than chart analysis to gather a greater insight of the markets. With the understanding of key fundamental data, know the ‘why’ behind every market move before it happens. These guides will be the first step in helping you to do so.

Unemployment Inflation GDP Growth Interest Rates

Deflation Geopolitical Events

Unemployment

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Unemployment claims are one of the biggest telltale signs of a growing or slowing economy.

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If the number of jobless claims are less than expected, that’s a sign of a growing economy, and if not, then it’s a sign that the economy and its fiat could be in trouble.

Figure 5

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Every Thursday, the ForexFactory website releases US’s unemployment claims for the week.

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In figure 5, jobless claims were expected to be 427,000 gained for the week. Instead, only 406,000 were actually reported, beating expectations by 21,000 less claims. This is good for the economy and a good sign that the USD will rise in value.

Unemployment Data from the A1 EdgeFinder

Key Takeaways:

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Unemployment claims tell us what is fundamentally going on in our economy

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They are either signs of growing or slowing economy and they will help us figure out how to trade pairs with jobless reports

Inflation

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When it comes to fundamental analysis of an economy, inflation metrics are some of the best ways to determine the health of a currency pair and what direction they may move in the long run.

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Inflation is the devaluation of a currency which marks the decline of purchasing power. While inflation is not always a bad thing, it can be compared between two currencies and help figure out which one will be in demand over the other.

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Usually, when you look at a nation’s consumer price index or CPI, it will help you find inflation. CPI measures the price of consumer goods and services which shows the overall value of the dollar, yen, pound, etc. When CPI rises, so does inflation.

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Figure 5 shows a chart of the United States’ Consumer Price Index over the span of a year and the inflation rate provided by the trading economics website. You can see as CPI increases
with inflation, and the US just saw a considerable spike in inflation compared to last month.

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Note that these numbers are real and relative to traders as of 5/18/2021. Because of
this recent spike in inflation in the US, the price of USD has fallen significantly since then
which is an alarming sign to dollar bulls. In fact, it’s an incentive to short pairs like USD/CAD or USD/JPY and long pairs like EUR/USD or GBP/USD or even XAU/USD.

Figure 4

Figure 5

Inflation Takeaways:

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Inflation measures the buying power of the dollar

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The higher the inflation, the less buying power

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Inflation helps measure a currency's direction in the long term

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It is also a key component in measuring an economy's health

Inflation Data from the A1 EdgeFinder

GDP Growth

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GDP is short for Gross Domestic Product which measures the value of all goods and services produced in an economy. GDP is one of the most common ways of measuring economic outlook and its effect on any currency.

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A growth in GDP usually suggests bullish news for the currency, whereas a fall in GDP means bearish news.

Figure 1

Figure 2

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Figure 1 shows a chart of a 3-year period measuring GDP growth rate for European countries which transact with the euro on Trading Economics. As you can see, GDP growth was slowing from July 2018 before turning negative in the first quarter of 2020.

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This in turn caused the euro to fall in value. Below is the price of EURUSD over this span of time where GDP growth declined. You can see that the overall trend pointed to the downside over the span of three years in figure 2.

GDP Growth from the A1 EdgeFinder

GDP Growth Takeaways:

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GDP is short for Gross Domestic Product which measures the value of all goods and services produced in an economy

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It is a very common indicator for fundamental analysis

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Traders can use change in growth of GDP to help them in their trading

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A growth or decline in GDP can indicate the long term trend of a currency pair

Interest Rates

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Interest rates are what the lender charges on top of the principal investment to whoever is holding that asset. The rates are expressed in percentages which could either be positive or negative.

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Lots of traders use interest rates to measure the strength of a currency. If a nation’s interest rate is negative, then the banks would actually pay you to have your money in their bank.

Figure 3

Interest Rates from the A1 EdgeFinder

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Figure 3 has the column for interest rates highlighted in six different countries. Traders may look at this to see which currency pair they would rather long or short.

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For example, traders might want to short GBP/USD because the US has a higher interest rate than the pound. Or maybe traders will want to long GBP/JPY because the pound has a higher interest rate than Japan’s negative interest rate for the yen.

Interest Rates Takeaways:

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When a lender sets an interest rate, it will be charged on top of the initial investment of a certain asset

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If a country has a negative interest rate, you would get paid to have your money in a bank

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Usually a higher interest rate means a stronger currency, so traders will want to base their entries on that

Deflation

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Deflation makes a currency stronger as it is usually when the country decreases money supply, government and/or consumer spending goes down, or when prices of consumer goods decrease.

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Just like inflation, too much deflation is bad for an economy, but deflation can also act as a bullish catalyst to a currency that might be getting too inflated.

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If the US were to start raising interest rates over 0.25%, this would cause consumers to spend less and save more, decreasing the money supply and thus causing inflation. Periods of deflation have happened before in the US during the Great Depression in the 1930s and in the recession of 2008.

Deflation Takeaways:

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When a country decreases their money supply, government spending, or when the price of goods decreases their is deflation

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Too much deflation is bad for the economy as it discourages spending

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Raising interest rates would cause some sort of deflation

Geopolitical Events

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Geopolitical events are described as an event that occurs in a certain geographical region where countries’ policies are affected or involved.

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A recent geopolitical problem that happened in the world was when China reported the first cases of the new COVID virus. This event caused the US and other countries to halt trading for some time, and this eventually led to a global shutdown as no one traded with each other and economies were temporarily on hold.

Geopolitical Takeaways:

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An event that occurs somewhere in the world that can influence or involve foreign or domestic policy is a geopolitical event

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Some of these events can affect global markets

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