Economic Indicators analysis is the examination of the underlying forces that affect the interests of the economy, industrial sectors and companies. As with most analysis, the goal is to derive a forecast for the future. Learning the monthly sequence of economic releases and market reaction to each release is one of the first steps in learning to track the economy. Forex traders should be taught to compare market expectations with actual economic indicators and then evaluate market reactions. It's the difference between market expectations for an economic release and the actual release number that primarily affect market movement.
Currency prices reflect the balance of supply and demand for currencies. Two primary factors affecting supply and demand are interest rates and the overall strength of the economy. Economic indicators such as GDP, foreign investment and the trade balance reflect the general health of an economy and are therefore responsible for the underlying shifts in supply and demand for that currency. There is a tremendous amount of data released at regular intervals, some of which is more important than others. Data related to interest rates and international trade is looked at the closest.
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