Leading indicator

An economic indicator that changes before the economy has changed. Forex traders need to take this data into analysis study especially during bullish or bearish trend. Leading indicators include :

* Average workweek of production workers in manufacturing
* Building permits,
* Unemployment claims,
* Money supply,
* Inventory changes such as Change in manufacturers' unfilled orders, durable goods, New orders for consumer goods and materials
* Change in sensitive materials prices
* Stock prices.
* Contracts and orders for plant and equipment

Financial and sociopolitical factors

Financial factors are crucial to fundamental analysis. Financial factors consists of income, cost of goods, gross profit margin, operating expense, total expenses, net profit, depreciation, net profit before interest, interest, net profit before taxes, tax, profit after tax.

The role of interest rates. Using the interest rates independently from the real economic environment .Forex consists of simultaneous transactions in two currencies, then it follows that the market must focus on two respective interest rates as well. Traders react when the interest rate differential changes, not simply when the interest rates themselves change. A move on the discount rate and interest rate may generate changes in both differential and the exchange rate. Traders are doing trade on expectation and facts. If the discount rate was changed for political rather than economic reasons, a common practice in the European Monetary System, the markets are likely to against the central banks, sticking to the real fundamentals rather than the political ones. The market professed those interest rates as artificially high and, so that they are sold the respective currencies. Finally, traders deal on the perceived importance of a change in the interest rate differential.

Political crises influence. A political crisis is usually dangerous for the Forex because it may generate a spiky decrease in trade volumes. Prices under certain circumstances dry out quickly, and sometimes signal jump from 5 pips to 100 pips. Predictable political issue may impact the currency. Currency traders need to prepare for crises. The traders should react as fast as possible to avoid big losses. Forex market will be mess up during the political crisis period. Therefore, traders should sensitive to daily news about government movement

Employment Indicators

The employment rate directly influence the country economy contraction, consumer spending, etc. Recession of employment rate will impact psychological confidence indicators and hence potentially increase criminal rate. The employment reports are significant to the financial markets in general and to forex in particular. This indicator is importance because it is align with the health of economy and maturity of business cycle.

Consumer spending indicators. Products sales are a significant consumer-spending indicator for forex traders, as it proves the strength of consumer demand as well as consumer confidence. CSI will induce high economical growth in a country and hence currency will be increase. In Forex, traders need to analyze data such as the unemployment rate, manufacturing payrolls, nonfarm payrolls, average earnings, and average workweek. Generally, the most significant employment data are manufacturing and nonfarm payrolls, followed by the unemployment rate.

Employment Cost Index ( ECI ). The Employment Cost Index measures the relative changes in wages, benefits, and bonuses for a specific group of occupations. Consumer Spending Indicators show on data of the retail sale volume which is important for the Forex because it shows the level of consumers demand and their sentiments. The productivity report indicates that the ECI can reveal whether the increased cost of labor is justified or not.

Retail Sails. Retail sales are a significant consumer-spending indicator for foreign exchange traders, as it shows the strength of consumer demand as well as consumer confidence. For a well development country, consumers are playing important role in economy aspect. If the consumers have enough discretionary income to spend on their daily demand, on the other hand there will be more supply or imported goods. Forex traders may need to focus on the sales report by end of the year. In September, this is the back to school month whereas December has seasonal sales activities. Therefore, forex traders have to study the retail sales report in November. Some seasonal sales activity brings fewer profit margins and the reason is because of the discount promotion or clear stock purpose. Traders watch retail sales closely to gauge the overall strength of the economy and, consequently, the strength of the currency.

Consumer sentiment . It’s a survey of households that is designed to gauge direct the individual propensity for spending money over the past and coming year as well as the evaluation and expectation on economy outlook.

Auto sales.The level of auto sales is an economic indicator as a reference for forex traders . Car manufacturing increase country profit margin while export to overseas. When car import, tax are collected by government. The Auto sales are one the main products which can generate high income for a country and directly influence currency exchange market. But if the car does not manufacture locally, the figure cannot be take into data for forex analysis.

Merchandize Trade Balance

Economy is possible influence by export and import trade. When products trade between countries, currency exchange should be taken consideration in order to gain more from the profit margin. Among all of the trade, the products are divided by six categories:

1. Food & beverages
2. raw material
3. consumer goods
4. autos
5. capital goods
6. other merchandise

Industrial sector indicators

Industrial Production indicator is the total output of a nation's plants, utilities, and mines. For the fundamentalists, this is the important indicator that reflects the strength of the economy, and also the strength of a specific currency. Therefore, forex traders use this economic indicator as a useful trading signal.

Capacity utilization indicator equal to the total output of industry divided by total production capability. It refers to the maximum output of production plant in a normal business conditions. Capacity utilization is not a major economic indicator for forex market. However, this is the substance that is useful for fundamental analysis. A "normal" figure for a steady economy is 81.5 percent. If the figure reads 85 percent or more, it means that the industrial production is overheating, which close to full capacity. High capacity utilization rates induce inflation, and forex market may expect bank to increase the interest rates in order to avoid or against inflation.

Factory orders refer to the total of durable and nondurable goods orders. The factory orders indicator has limited significance for forex traders.

Nondurable goods are those products with life span not more than three years. For instance, food, clothing, light industrial products.

Durable goods orders are those products with a life span of more than three years. For example appliances, furniture, jewelry, and electronic products. They are divided into four major categories: primary metals, machinery, electrical machinery, and transportation. In order to eliminate the volatility pertinent to large military orders, the indicator includes a breakdown of the orders between defense and non-defense.

How can forex traders analyze from the data?
This data is fairly important to forex markets due to a good indication of consumer confidence. If durable goods cost more than nondurable, a high number in this indicator shows consumers' propensity to spend. Therefore, a good figure shows the bullish of the domestic currency.

Business inventories are the items produced and stored for future sale. The compilation of this information determines the situation of business of the market. Moreover, financial management and computerization help control business inventories in exceptional ways. Therefore, this indicator is not much important for the forex traders.

Inflation indicators

When inflation arises, bank interest rate tend to increase to fight against it. In additional, high interest rate may alternately support the local currency rate . Normally we use the indicators below to measure the inflation trade.

Producer price index (PPI). The compilation of most sectors of the economy, such as manufacturing, mining, and agriculture. PPI does not include imported goods, services, or taxes. It measures the average change over time in the selling prices received by local producers for their output. For PPI calculator, refer to http://www1.jsc.nasa.gov/bu2/inflation/ppi/inflatePPI.html

Consumer price index (CPI). Reflects the average change in retail prices paid by most consumer for a fixed market basket of goods and services. The CPI data is obtained from a sample of prices for food, shelter, clothing, fuel, transportation, and medical services that people purchase in daily basis.

For example, in 2000, you buy a book cost $10 and then in 2006 the same book will cost $11.76.

Formula:
CPI in 2000 = 110.88
CPI in 2006 = 130.4
Price in 2000= Price in 2006( 2000 CPI /2006 CPI)
$10=$11.76 (110.88/130.4)

Gross national product implicit deflator. It’s calculated by dividing the current dollar GNP figure by the constant dollar GNP figure.

Gross domestic product implicit deflator. It’s calculated by dividing the current dollar GDP figure by the constant dollar GDP figure.

Commodity research bureau's (CRB) futures index . An equally weighted index of 21 commodities, commonly used to gauge the effects of inflation.

The “Journal of Commerce” industrial price index (JoC). Consists of the prices of 18 industrial materials and supplies processed in the initial stages of manufacturing, building, and energy production.

Construction Data

These indicators are classified into three major categories:

1. real estate development and approval
2. new housing sales and second hand housing offered;
3. construction expenditures

Construction indicators are recurring and very sensitive to the level of interest rates and the level of disposable income. Sometimes, the bank issue low interest rates also won’t help to generate a high demand for housing. As happened in U.S. 1990, low mortgage rates only cause housing increased marginally, due to the low employment rate in a weak economy period. Housing level about between one and a half and two million units indicates a strong economy, whereas around one million units imply that the economy is in downturn.