One major factor that affects foreign exchange trends is a country’s import and export trade balance. The level of trade balances and any changes in the import and export trade is widely studied by Forex traders in order to get a clearer picture as to the strength of that country’s currency. These changes are followed avidly by those who study the fundamental analysis in order to make decisions regarding the trade in real currency. While trade balance is the major indicator of foreign exchange trends there are numerous other indicators which help to give the true path of a country’s currency such as the ones listed below.
Gross Domestic Product (GDP)
The Gross Domestic Product or GDP as it is widely known is probably the broadest gauge of the total economic activity that is reported quarterly. A country’s production during the given quarter is represented by its GDP value. The quarterly reviews are subject to volatility and revisions can be often seen. Therefore, it is best to view the GDP annually in order to determine the strength of the economy and the currency.
Consumer Price Index (CPI)
The Consumer Price Index or CPI will show the average price levels for a fixed basket of goods and services which are purchased by consumers. The CPI is reported on a monthly basis and is considered as a good guide to inflation levels. But one thing that should be remembered is that the prices of food and energy are excluded as they are considered to be too volatile.
Producer Price Index
The Producer Price Index or PPI measures the average of the prices pertaining to a fixed basket of goods received by producers in primary markets. The monthly report indicates any commodity inflation and is used as a guide to the price changes in manufacturing. Here again, the food and energy sectors are not counted.
Payroll Employment
This is one primary monthly indicator that gives the number of people in employment under non-farm business establishments and the government.
Durable Goods Orders
This is an indicator of the new orders placed for factory hard goods with domestic manufactures and is a useful guide to the economic activity of a country.
Retail Sales
The measure of retail sales taken as a monthly percentage is a good guide to the consumer spending of a country. Generally, the retail sales are taken into account with the exclusion of the auto retail sales as it could be too volatile.
Housing Starts
Housing starts are a measure of the units of housing that has been started during the month under consideration and is considered to show how healthy the construction sector is in the country.