Everyday, currencies are traded in an international foreign exchange market, otherwise known as the forex market, with the main marketplaces (otherwise known as bourses) existing in the world financial centes New York, London, Tokyo, Frankfurt and Zurich. Historically, the only way to participate was from the trading floor of one of these bourses, but today, people can trade forex from anywhere through a secure internet connection and a PC.

Today traders operate in a global network, taking positions in the market and making investment decisions based on either relative value between two currencies, or a particular currency actual price. Currency value fluctuations are constantly renegotiated through trading activity, and this activity, and the corresponding currency values are also indicators of the levels of currency supply.

An example of market behaviour greater demand for the Euro might indicate a weakening supply. Low supply and increased demand will drive the price of the Euro up against other currencies like the dollar, until the price better reflects what traders are prepared to pay when short supply exists. Another way to look at this situation is this higher demand means it will cost more dollars to buy the Euro, which equates to a weakening of the dollar in comparison. Analysis of situations such as in this example forms the basis for a trader investment decisions, and they will purchase or sell currency accordingly.

This should be remembered, as while many see the foreign exchange market as the vehicle for converting their home currency while travelling abroad, many others choose to use the market to advance their financial position and secure their future.

Jay Moncliff

Did you know that the foreign exchange market (also known as FX or forex) is the largest market in the world? In fact, over $1 trillion is traded in the currency markets on a daily basis. This article is certainly not a primer for currency trading, but it will help you understand exchange rates and why some fluctuate while others do not.What Is an Exchange Rate?An exchange rate is the rate at which one currency can be exchanged for another. In other words, it is the value of another country's currency compared to that of your own. If you are traveling to another country, you need to "buy" the local currency. Just like the price of any asset, the exchange rate is the price at which you can buy that currency. If you are traveling to Egypt, for example, and the exchange rate for USD 1.00 is EGP 5.50, this means that for every U.S. dollar, you can buy five and a half Egyptian pounds. Theoretically, identical assets should sell at the same price in different countries, because the exchange rate must maintain the inherent value of one currency against the other.
FixedThere are two ways the price of a currency can be determined against another. A fixed, or pegged, rate is a rate the government (central bank) sets and maintains as the official exchange rate. A set price will be determined against a major world currency (usually the U.S. dollar, but also other major currencies such as the euro, the yen, or a basket of currencies). In order to maintain the local exchange rate, the central bank buys and sells its own currency on the foreign exchange market in return for the currency to which it is pegged.
If, for example, it is determined that the value of a single unit of local currency is equal to USD 3.00, the central bank will have to ensure that it can supply the market with those dollars. In order to maintain the rate, the central bank must keep a high level of foreign reserves. This is a reserved amount of foreign currency held by the central bank which it can use to release (or absorb) extra funds into (or out of) the market. This ensures an appropriate money supply, appropriate fluctuations in the market (inflation/deflation), and ultimately, the exchange rate. The central bank can also adjust the official exchange rate when necessary.
FloatingUnlike the fixed rate, a floating exchange rate is determined by the private market through supply and demand. A floating rate is often termed "self-correcting", as any differences in supply and demand will automatically be corrected in the market. Take a look at this simplified model: if demand for a currency is low, its value will decrease, thus making imported goods more expensive and thus stimulating demand for local goods and services. This in turn will generate more jobs, and hence an auto-correction would occur in the market. A floating exchange rate is constantly changing.
In reality, no currency is wholly fixed or floating. In a fixed regime, market pressures can also influence changes in the exchange rate. Sometimes, when a local currency does reflect its true value against its pegged currency, a "black market" which is more reflective of actual supply and demand may develop. A central bank will often then be forced to revalue or devalue the official rate so that the rate is in line with the unofficial one, thereby halting the activity of the black market.
In a floating regime, the central bank may also intervene when it is necessary to ensure stability and to avoid inflation; however, it is less often that the central bank of a floating regime will interfere.
The World Once PeggedBetween 1870 and 1914, there was a global fixed exchange rate. Currencies were linked to gold, meaning that the value of a local currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. This allowed for unrestricted capital mobility as well as global stability in currencies and trade; however, with the start of World War I, the gold standard was abandoned.
At the end of World War II, the conference at Bretton Woods, in an effort to generate global economic stability and increased volumes of global trade, established the basic rules and regulations governing international exchange. As such, an international monetary system, embodied in the International Monetary Fund (IMF), was established to promote foreign trade and to maintain the monetary stability of countries and therefore that of the global economy
It was agreed that currencies would once again be fixed, or pegged, but this time to the U.S. dollar, which in turn was pegged to gold at USD 35/ounce. What this meant was that the value of a currency was directly linked with the value of the U.S. dollar. So if you needed to buy Japanese yen, the value of the yen would be expressed in U.S. dollars, whose value in turn was determined in the value of gold. If a country needed to readjust the value of its currency, it could approach the IMF to adjust the pegged value of its currency. The peg was maintained until 1971, when the U.S. dollar could no longer hold the value of the pegged rate of USD 35/ounce of gold.
From then on, major governments adopted a floating system, and all attempts to move back to a global peg were eventually abandoned in 1985. Since then, no major economies have gone back to a peg, and the use of gold as a peg has been completely abandoned.
Why Peg?The reasons to peg a currency are linked to stability. Especially in today's developing nations, a country may decide to peg its currency to create a stable atmosphere for foreign investment. With a peg the investor will always know what his/her investment value is, and therefore will not have to worry about daily fluctuations. A pegged currency can also help to lower inflation rates and generate demand, which results from greater confidence in the stability of the currency.
Fixed regimes, however, can often lead to severe financial crises since a peg is difficult to maintain in the long run. This was seen in the Mexican (1995), Asian and Russian (1997) financial crises: an attempt to maintain a high value of the local currency to the peg resulted in the currencies eventually becoming overvalued. This meant that the governments could no longer meet the demands to convert the local currency into the foreign currency at the pegged rate. With speculation and panic, investors scrambled to get out their money and convert it into foreign currency before the local currency was devalued against the peg; foreign reserve supplies eventually became depleted. In Mexico's case, the government was forced to devalue the peso by 30%. In Thailand, the government eventually had to allow the currency to float, and by the end of 1997, the bhat had lost its value by 50% as the market's demand and supply readjusted the value of the local currency.
Countries with pegs are often associated with having unsophisticated capital markets and weak regulating institutions. The peg is therefore there to help create stability in such an environment. It takes a stronger system as well as a mature market to maintain a float. When a country is forced to devalue its currency, it is also required to proceed with some form of economic reform, like implementing greater transparency, in an effort to strengthen its financial institutions.
Some governments may choose to have a "floating," or "crawling" peg, whereby the government reassesses the value of the peg periodically and then changes the peg rate accordingly. Usually the change is devaluation, but one that is controlled so that market panic is avoided. This method is often used in the transition from a peg to a floating regime, and it allows the government to "save face" by not being forced to devalue in an uncontrollable crisis.
Although the peg has worked in creating global trade and monetary stability, it was used only at a time when all the major economies were a part of it. And while a floating regime is not without its flaws, it has proven to be a more efficient means of determining the long term value of a currency and creating equilibrium in the international market.

by Reem Heakal

Those trading in the foreign-exchange market (forex) rely on the same two basic forms of analysis that are used in the stock market: fundamental analysis and technical analysis. The uses of technical analysis in forex are much the same: price is assumed to reflect all news, and the charts are the objects of analysis. But unlike companies, countries have no balance sheets, so how can fundamental analysis be conducted on a currency? Since fundamental analysis is about looking at the intrinsic value of an investment, its application in forex entails looking at the economic conditions that affect the valuation of a nation's currency. Here we look at some of the major fundamental factors that play a role in the movement of a currency.
Economic IndicatorsEconomic indicators are reports released by the government or a private organization that detail a country's economic performance. Economic reports are the means by which a country's economic health is directly measured, but do remember that a great deal of factors and policies will affect a nation's economic performance.
These reports are released at scheduled times, providing the market with an indication of whether a nation's economy has improved or declined. The effects of these reports are comparable to how earnings reports, SEC filings and other releases may affect securities. In forex, as in the stock market, any deviation from the norm can cause large price and volume movements.
You may recognize some of these economic reports, such as the unemployment numbers, which are well publicized. Others, like housing stats, receive little coverage. However, each indicator serves a particular purpose, and can be useful. Here we outline four major reports, some of which are comparable to particular fundamental indicators used by equity investors:
The Gross Domestic Product (GDP)The GDP is considered the broadest measure of a country's economy, and it represents the total market value of all goods and services produced in a country during a given year. Since the GDP figure itself is often considered a lagging indicator, most traders focus on the two reports that are issued in the months before the final GDP figures: the advance report and the preliminary report. Significant revisions between these reports can cause considerable volatility. The GDP is somewhat analogous to the gross profit margin of a publicly traded company in that they are both measures of internal growth.
Retail SalesThe retail-sales report measures the total receipts of all retail stores in a given country. This measurement is derived from a diverse sample of retail stores throughout a nation. The report is particularly useful because it is a timely indicator of broad consumer spending patterns that is adjusted for seasonal variables. It can be used to predict the performance of more important lagging indicators, and to assess the immediate direction of an economy. Revisions to advanced reports of retail sales can cause significant volatility. The retail sales report can be compared to the sales activity of a publicly traded company.
Industrial ProductionThis report shows the change in the production of factories, mines and utilities within a nation. It also reports their 'capacity utilizations', the degree to which the capacity of each of these factories is being used. It is ideal for a nation to see an increase of production while being at its maximum or near maximum capacity utilization.
Traders using this indicator are usually concerned with utility production, which can be extremely volatile since the utilities industry, and in turn the trading of and demand for energy, is heavily affected by changes in weather. Significant revisions between reports can be caused by weather changes, which in turn, can cause volatility in the nation's currency.
Consumer Price Index (CPI)The CPI is a measure of the change in the prices of consumer goods across over 200 different categories. This report, when compared to a nation's exports, can be used to see if a country is making or losing money on its products and services. Be careful, however, to monitor the exports - it is a focus that is popular with many traders because the prices of exports often change relative to a currency's strength or weakness. Some of the other major indicators include the purchasing managers index (PMI), producer price index (PPI), durable goods report, employment cost index (ECI), and housing starts. And don't forget the many privately issued reports, the most famous of which is the Michigan Consumer Confidence Survey. All of these provide a valuable resource to traders, if used properly.

So, How Are These Used?Since economic indicators gauge a country's economic state, changes in the conditions reported will therefore directly affect the price and volume of a country's currency. It is important to keep in mind, however, that the indicators discussed above are not the only things that affect a currency's price. There are third-party reports, technical factors, and many other things that also can drastically affect a currency's valuation. Here are a few useful tips that may help you when conducting fundamental analysis in the foreign exchange market:
Keep an economic calendar on hand that lists the indicators and when they are due to be released. Also, keep an eye on the future; often markets will move in anticipation of a certain indicator or report due to be released at a later time. Be informed about the economic indicators that are capturing most of the market's attention at any given time. Such indicators are catalysts for the largest price and volume movements. For example, when the U.S. dollar is weak, inflation is often one of the most watched indicators. Know the market expectations for the data, and then pay attention to whether or not the expectations are met. That is far more important than the data itself. Occasionally, there is a drastic difference between the expectations and actual results and, if there is, be aware of the possible justifications for this difference. Don't react too quickly to the news. Oftentimes, numbers are released and then revised, and things can change quickly. Pay attention to these revisions, as they may be a useful tool for seeing the trends and reacting more accurately to future reports. ConclusionThere are many economic indicators, and even more private reports that can be used to evaluate the fundamentals of forex. It's important to take the time to not only look at the numbers, but also understand what they mean and how they affect a nation's economy. When properly used, these indicators can be an invaluable resource for any currency trader.

by Justin Kuepper

A

Auto Sales

Car sales are tremendously important to the US economy but their volatility can make them an unreliable indicator. New models introduced at the end of summer and in early spring tend to have a disproportionate influence on sales figures. That said, strong figures are a good sign that consumer demand is picking up. They can be seen as indicating higher future production if demand is sustained over three or four months. The size of the item in question and the timeliness of the release allow auto sales to be a useful leading indicator of retail sales and personal consumption expenditures data.

Release Date: Around the 13th of each month
Release Time: 13:30 GMT

B

Balance of Payments (BOP)

The Balance of Payments (BOP) is the method countries use to monitor all international monetary transactions at a specific period of time. Usually, the BOP is calculated every quarter and every calendar year. All trades conducted by both the private and public sectors are accounted for in the BOP in order to determine how much money is going in and out of a country. If a country has received money, this is known as a credit, and, if a country has paid or given money, the transaction is counted as a debit. Theoretically, the BOP should be zero, meaning that assets (credits) and liabilities (debits) should balance. But in practice this is rarely the case and, thus, the BOP can tell the observer if a county has a deficit or a surplus and from which part of the economy the discrepancies are stemming.

Balance of Trade

The largest component of a country's balance of payments. It is the difference between exports and imports. Debit items include imports, foreign aid, domestic spending abroad and domestic investments abroad. Credit items include exports, foreign spending in the domestic economy, and foreign investments in the domestic economy. The US merchandise trade balance has been in a deficit since the mid-1970s. Rising deficits can be reflective of increased consumption, which can be a sign of a strengthening economy.

Release Date: Around the 12th of each month
Release Time: 13:30 GMT

Beige Book Fed Survey

Officially known as the Survey on Current Economic Conditions, the Beige Book is published eight times per year by a Federal Reserve Bank, containing anecdotal information on current economic and business conditions in its District through reports from Bank and Branch directors, and interviews with key business contacts, economists, market experts, and other sources. The Beige Book highlights the activity information by District and sector. The survey normally covers a period of about 4-weeks in duration, and is released two weeks prior to each FOMC meeting, which is also held eight times per year. While being deemed by some as a lagging report, the Beige Book has usually served as a helpful indicator to FOMC policy decisions on monetary policy.
The Beige Book isn't considered to be a big market mover. It is a gauge on the strength of the economy and not a commentary on the views of Fed members. Occasionally it can move markets if the findings are a big surprise from analyst expectations.

Release Date: Two Wednesdays before every FOMC meet. 8 times a yr
Release Time: 19:15 GMT

Business Inventories and Sales

Business inventories and sales figures consist of data from other reports such as durable goods orders, factory orders, retail sales, and wholesale inventories and sales data. Inventories are an important component of the GDP report because they help distinguish which part of total output produced (GDP) remained unsold. As a result, this presents us with important clues on the future direction of the economy. Before computerization allowed companies to trim inventories and use minimal stock on hand, inventory build up was indicative of falling demand and potentially a recession. If inventories decline significantly over a three month period it is an indication that demand has picked up and that production will have to increase to restock.

Release Date: Second Friday of each month
Release Time: 13:30 GMT

C

Capacity Utilisation

Measures how much of the productive potential of the economy is being used. A level of 85% is a good balance of growth and inflation; anything above this level raises inflationary fears.

Release Date: Around the 14th of each month
Release Time: 13:30 GMT

CBI Surveys

Britains largest organisation of business employers, aims at creating and sustaining favourable conditions for their optimal competition and prosperity. The CBI publishes monthly and quarterly surveys, on past, current and future assessments on the manufacturing and services sectors. The indexes reflect respondents views on various items such as, output, sales, prices, inventories, and export/import orders.

Release Date: Around the 27th of each month
Release Time: 11:00 GMT

Chicago PMI

A survey of Chicago-based managers which covers prices, durable goods orders and inventories. It is closely-watched since it is announced before the National Association of Purchasing Managers' index (NAPM). The Chicago figure gives a good idea of what the national figure will be.

Release Date: Around the end of each month
Release Time: 15:00 GMT

Construction Spending

Construction spending data comes out after most of the housing data has already been released; its influence is therefore diminished. The indicator sometimes shocks the market if it shows a sudden pick-up in the amount spent on new home construction.

Release Date: Around the beginning of each month
Release Time: 15:00 GMT

Consumer Confidence Index (CCI)

The Consumer Confidence Index (CCI) is put out by The Conference Board. (There are others such as the Michigan Sentiment Index which is put out monthly by the University of Michigan). The Consumer Confidence Survey is based on a sample of 5,000 U.S. Households and is considered one of the most accurate indicators of confidence. It even goes as far as calculating the number of "help wanted" ads in newspapers to detect how tight the job market is.

The idea behind consumer confidence is that when the economy warrants more jobs, increased wages, and lower interest rates, it increases our confidence and spending power. Should the index move above or below the moving average it is a good indication that consumer confidence is significant. Month to month changes are not considered to have as great an impact as the overall trend.

Confidence is looked at closely by the Federal Reserve when determining interest rates, which affect stock prices. Lowering interest rates make it easier to borrow which ultimately supports consumer spending and higher confidence - something the stock markets love to hear. Keep in mind that lowering interest rates is not an instantaneous confidence booster, it can take 6-8 months for rate cuts to work their way into the economy. On the other hand, if confidence is rising rapidly it could trigger higher inflation.

Release Date: Around the 25th of each month
Release Time: 15:00 GMT

Consumer Credit

Consumer Credit is an indicator of consumer spending and demand. It reflects the amount of credit Americans are using, month-on-month, through credit card purchases, personal loans, hire purchase orders or payment plans. A high consumer credit figure suggests the US consumer is not concerned to run up bills in order to finance his/her consumer demands. But the figure is often revised and is seasonally volatile it goes up before Christmas. It is therefore is given only cursory attention.

Release Date: Around 7th of each month
Release Time: 20:00 GMT

Consumer Price Index (CPI)

The Consumer Price Index (CPI) is considered the most widely used measure of inflation and is regarded as an indicator of the effectiveness of government policy. The CPI is a basket of consumer goods (and services) tracked from month to month (excluding taxes). Items included reflect prices of food, clothing, shelter, fuels, transportation, health care and all other goods and services that people buy for day-to-day living. CPI figures are collected in 87 areas throughout the U.S. from over 22,000 retail and service establishments. Rent paid by individuals is also collected from 50,000 landlords and tenants.

The CPI is one of the most followed economic indicators and considered to be a big market mover. A rising CPI indicates inflation, a large increase is something financial markets don't like to hear. Inflation is the rate at which the general price for goods and services is rising, and subsequently our purchasing power is falling. As inflation rises this means that every dollar you own will buy a less percentage of a good or service. The Federal Reserve typically battles rising inflation by increasing short term interest rates. Rising rates are frowned upon by corporations and investors because the cost of borrowing money increases.

Release Date: Second Friday of each month
Release Time: 13:30 GMT

Current Account

The most important part of international trade data. It is the broadest measure of sales and purchases of goods, services, interest payments and unilateral transfers. The entire merchandise trade balance is contained in the current account.

D

Durable Goods Orders

These include large ticket items such as capital goods (machinery, plant and equipment), transportation and defence orders. They are extremely important in that they anticipate changes in production and thus, signal turns in the economic cycle.

But the large size of these items (aircrafts and civilian orders) means that they present equally large changes, which makes them extremely volatile. This also gives rise to sizeable revisions in the subsequent periods once more complete data becomes available one week later. Durable goods data are better used when omitting defence orders and transportation orders, while calculating a three-month moving average, and a year-to-year percent change.

Release Date: Around the 26th of each month
Release Time: 13:30 GMT

E

Employment Cost Index (ECI)

The Employment Cost Index is a quarterly survey of employer payrolls in the final month of the quarter. The ECI tracks movement in the cost of labour which includes wages, fringe benefits, and bonuses for employees at all levels of involvement in the companies. Wages and salaries make up approximately 75% of the indexes value. The one benefit not included in the ECI is employee stock options, which actually don't cost employers anything to issue.

This indicator isn't the most watched, but it is among a select group of indicators that have enough power to move the markets, especially during inflationary times. The idea behind the ECI is that as wage pressures increase so does inflation. This is mainly because compensation tends to increase before companies increase prices for consumers (inflation).

The ECI is particularly useful when it's compared to inflation and productivity growth rates. Ideally you would like to see wages increase at a similar rate as inflation and productivity. If employee costs are rising but productivity is not then it could spell trouble for companies.

Release Date: The last Thursday of Apr, Jul, Nov and Jan
Release Time: 13:30 GMT

European Central Bank (ECB)

The European Central Bank (ECB) and the national central banks together constitute the Eurosystem, the central banking system of the euro area. The main objective of the Eurosystem is to maintain price stability: safeguarding the value of the euro.

Release Date: First Thursday of each month
Release Time: 12:45 GMT

Existing Home Sales

The number and value of old homes sold. Can give markets an insight into the strength of consumer confidence and spending power. Existing home sales also offer evidence of inflationary pressure if prices are rising rapidly.

Release Date: Around the 25th of each month
Release Time: 15:00 GMT

F

Factory Orders and Manufacturing Inventories

In many respects this report is a rehash of the durable goods release that became available a week earlier. However, the factory orders report merits review because it also contains data on orders and shipments of nondurable goods, manufacturing inventories, and the inventory/sales ratio. Order data is useful because it tells us something about the likely pace of production in the months ahead. They are extremely volatile and can fluctuate by three or four percent in any given month. They are subject to sizeable revisions and are very difficult to forecast.

Release Date: Around the 4th of each month
Release Time: 15:00 GMT

Federal Open Market Committee (FOMC)

The body that sets the interest rate and credit policies of the Federal Reserve System.
The FOMC is the most important monetary policymaking body of the Federal Reserve System. The current chairman is Alan Greenspan.

The FOMC is composed of the seven members of the Board of Governors and five Reserve Bank presidents. The president of the Federal Reserve Bank of New York serves on a continuous basis, while the presidents of the other Reserve Banks serve one-year terms on a rotating basis.

Release Date: First Wednesday of the month
Release Time: 19:15 GMT

G

Gross Domestic Product (GDP)

GDP is a gross measure of market activity. It represents the monetary value of all the goods and services produced by an economy over a specified period. This includes consumption, government purchases, investments, and the trade balance (exports minus imports). The GDP is perhaps the greatest indicator of the economic health of a country. It is usually measured on a yearly basis, but quarterly stats are also released. The Commerce Department releases an "advance report" on the last day of each quarter. Within a month it follows up with the "preliminary report" and then the "final report" is released another month later.

The most recent GDP figures have a relatively high importance to the markets. GDP indicates the pace at which a country's economy is growing (or shrinking). If GDP growth fails to meet or beat the market expectations stocks can temporarily pay the price. Traditionally, the U.S. Economy's average growth rate has been between 2.5 - 3%. Economists believe that this range represents the sustainable long-run growth rate of output.

Release Date: Last day of the Quarter
Release Time: 15:30 GMT

H

Help Wanted Index

An index published monthly by the Conference Board that shows the total number of help-wanted advertisements occurring monthly in 51 major newspapers from around the country.

This is an indicator of strength in the labour markets. Large numbers of ads imply that the labour market is strong and wages will need to increase in order to attract more workers. In contrast, if the number of ads are few, the labour market is weak and wages will decrease as workers will be willing to accept lower wages for jobs.

Release Date: Last Thursday of each month
Release Time: 15:00

Housing Starts / Building Permits

This economic indicator tracks how many new single-family homes or buildings were constructed throughout the month. For the survey each house and each single apartment are counted as one housing start, (a building with 200 apartments would be counted as 200 housing starts). The figures include all private and publicly owned units, with the only exception being mobile homes which are not counted. Most of the housing start data is collected through applications and permits for building homes. The housing start data is offered in an unadjusted and a seasonally adjusted format.

This indicator isn't a huge market mover, but it has been reported by U.S. Census that the housing industry represents over 25% of investment dollars and a 5% value of the overall economy. Housing starts are considered to be a leading indicator, meaning it detects trends in the economy looking forward.

Declining housing starts show a slowing economy, while increases in housing activity can pull an economy out of a downturn. However, a considerably stronger report is not good because it can be interpreted that growth is extremely strong and could lead to high inflation. The fact that housing is closely related to mortgage rates means that housing starts data has a strong effect on the bond market and predictions for interest rate movements. As interest rates rise it is expected that housing starts will decline.

Release Date: Around the middle of the following month.
Release Time: 15:30 GMT

I

IFO

Germanys leading survey of business conditions. Published monthly by the Institute for Economic Research, one of the largest economic think tanks in Germany, the IFO Business Climate Index is a widely followed leading indicator of economic activity known for its track record in calling economic turns in German economic growth. The index surveys over 7,000 enterprises on their assessment of the current business situation and their resulting plans for the short-term. In addition to this aforementioned headline index, there is the Current Situation Index and Business Expectations Index.

Release Date: Around the end of each month
Release Time: 13:00 GMT

Index of Industrial Production

This is an important measure of the nation's industrial output. It is expressed as a rate of change from the previous month, and gives markets a good idea of the strength of the US manufacturing sector. The index comprises data from the market and from industrial sectors. The market grouping consists of final products (consumer goods, business equipment, and construction supplies), intermediate products and materials. The industrial grouping covers manufacturing (divided into durable and non-durable goods), mining and utilities.

Changes in industrial production are a significant indicator of manufacturing sector trends. However, from month to month the figures can be volatile. With this in mind it is better to follow either the three-month moving average of the monthly change or year-on-year changes.

Release Date: The second Friday of each month
Release Time: 14:15 GMT

Initial Claims (Jobless Claims)

The numbers are released each week by the US Department of Labour and measure the weekly change in state applications for unemployment benefits. The financial markets regard the report as a good indicator of changing trends in the labour market and in the economy as a whole.

However, the figures do not always represent a true picture of economic trends. They are often distorted by short-term factors such as state and federal holidays. Therefore, a longer-term moving average of initial claims is a more reliable indicator.
Initial claims also give hints about the non-farm payroll. If initial claims are down consistently over a month, there is a good chance the non-farm payroll will come in high.

Release Date: Every Thursday
Release Time: 13:30 GMT

Institute for Supply Management (ISM)

This is leading survey on US manufacturing activity. The report is released on the first working day of the month, providing the first detailed look at the manufacturing sector before the release of the all-important employment report.

Highly valued for its timeliness and breadth of information, the headline figure is a function of six major components: prices paid; new orders; supplier deliveries; production, inventories and employment. Note that the latter three components reflect supply forces, while the former three cover demand forces. Watching the relative trend of these two groups (demand and supply) sheds light on the balance between demand and supply forces, and hence, provides insight on the Federal Reserves policy decisions since they lend much importance to these balances. The Prices Paid component is widely watched because it assesses price pressures ahead in the sector. A figure of 50 or above indicates expansion in the sector, while a number below 50 suggest a contraction.

Release Date: First Thursday of the month
Release Time: 15:00 GMT

L

Leading Indicator

The leading indicator piles together already-announced data for new orders, jobless claims, money supply, average workweek, building permits, stock prices and durable goods. Its predictability gives it a low grade.

Release Date: Beginning of the month
Release Time: 13:30 GMT

M

Michigan Consumer Sentiment

The Michigan consumer sentiment index is a survey of consumer confidence conducted by the University of Michigan at a national level. There are two reports a month: a preliminary released around the 10th of the month for that month, and a final released on the first of the next month for the prior month. The index is nothing more than a snapshot of whether consumers feel like spending their money or not.

Release Date: The second Friday of each month
Release Time: 14:45 GMT

Monetary Policy Committee (MPC)

Interest rates are set by the Monetary Policy Committee.

The MPC studies all the available economic data and looks at a range of domestic and international economic and monetary factors. There is a briefing meeting prior to the MPC where presentations are made to the MPC by the Bank's economists and its regional agents.
The Bank's Monetary Policy Committee (MPC) is made up of the Governor, the 2 Deputy Governors, the Bank's Chief Economist, the Executive Director for Market Operations and 4 external members appointed directly by the Chancellor.

Release Date: Wednesday / Thursday at the beginning of the month
Release Time: Thursday 12 Noon

Money Supply

The entire quantity of a country's bills, coins, loans, credit, and other liquid instruments in the economy.

Money supply is divided into three categories, M1, M2, and M3, according to the type and size of account the instrument is kept in. This number is important to economists trying to understand how policies will affect interest rates and growth.

Release Date: Around the beginning of each month
Release Time: 09:30 GMT

N

New Home Sales

Monthly data new home sales data are released for the nation as a whole and for four geographical areas the Northeast, the Midwest, the South, and the West. The report also contains information on home prices, and number of houses for sale. Housing is a crucial segment of the economy because it signals changes in consumer spending patterns that are indicative of economic activity. Volatility and revisions, however, are common in the report. The report is seasonally variable. A four-month moving average or a year-on-year measure is more useful.

Release Date: Around the 26th of each month
Release Time: 15:00 GMT

Non-Farm Payroll (NFP)

Non-farm payroll (NFP) is a monthly survey of the number of new jobs created. It is a very good indicator of the unemployment rate. NFP is the market mover, the most closely-watched by all in the bond and foreign exchange markets.

NFP is also seen as having a reasonable correlation with GDP growth. There is a rule of thumb that a rise of 200,000 a month equates to a rise of 3% in GDP.

Release Date: First Friday of each month
Release Time: 15:30 GMT

P

Personal Consumption

Personal consumption is an indication of the amount Americans spend on goods and services in a given month. The number is pre-empted by retail sales which tend to give a more thorough view of similar expenditure.

Release Date: Around the end of each month
Release Time: 13:30 GMT

Personal Income and Personal Consumption Expenditures (PCE)

Personal Spending, also known as PCE, represents the change in the market value of all goods and services purchased by individuals. It is the largest component of GDP. Personal income represents the change in compensation that individuals receive from all sources including: wages and salaries; proprietors income; income from rents; dividends and interest; and transfer payments (Social Security, unemployment, and welfare benefits). The release of these two figures gives you the savings rate, which is the difference between disposable income (personal income minus taxes) and consumption, divided by disposable income. The ever-declining savings rate has become a key indicator to watch as it signals consumer spending patterns.

Release Date: Around the end of each month
Release Time: 13:30 GMT

Philadelphia Fed Index (Business Outlook Survey)

The Philadelphia Fed Index is a monthly survey of manufacturers located around the states of Pennsylvania, New Jersey and Delaware. Companies surveyed indicate the direction of change in their overall business activity and in the various measures of activity at their plants. They are asked questions regarding employment, working hours, new and unfilled orders, shipments inventories, delivery times, prices paid, and prices received. The survey has been conducted each month since May 1968. The index signals expansion when it is above zero and contraction when below. It takes the difference between the number of positive and negative responses: if 30% of manufacturers think prices will go up and 39% think they will go down, the prices paid indicator would be 9.

The Philadelphia Fed Index is considered to be a good indicator of changes in everything from employment, general prices, and conditions within the manufacturing industry. Manufacturing is considered to be a precursor to future economic conditions and it lays the groundwork toward economic recovery. For example, in a poor economy if manufacturing starts to pick up there is an expectation that the economy will soon follow behind.

Release Date: Around the 17th of each month
Release Time: 15:00 GMT

Producer Price Index (PPI)

The Producer Price Index is not as widely used as the CPI, but it is still considered to be a good indicator of inflation. Formerly known as the "Wholesale Price Index", the PPI is a basket of various indexes covering a wide range of areas affecting domestic producers. The PPI includes industries such as goods manufacturing, fishing, agriculture, and other commodities. Each month approximately 100,000 prices are collected from 30,000 production and manufacturing firms.

There are three primary areas that make up the PPI. These are industry-based, commodity-based, stage-of-processing goods.
The PPI is another important indicator which investors pay close attention to. It is not as strong as the CPI in detecting inflation, but because it includes goods being produced it is often a forecast of future CPI releases.

The PPI is also used extensively by company officials for determining future supply or sales contracts. For example, a sudden rise in the PPI could mean that future sales contracts will also rise.

Release Date: Second Thursday of the month
Release Time: 13:30 GMT

Productivity

An indication of output per employee. While productivity is helpful in the analysis of an economy, it is often misleading. This is because a reduction in personnel can, at times of recession for example, lead to an increase in productivity. Thus output per employee may seem encouraging while overall economic performance is declining.

Purchasing Managers Index (PMI)

The Index is widely used by industrialised economies to assess business confidence. Germany, Japan and the UK use PMI surveys for both manufacturing and services industries. The numbers are arrived at through a series of questions regarding Business activity, New Business, Employment, Input Prices, Prices Charged and Business Expectations. In addition to the headline figures, the prices paid components is highly scrutinized by the markets for evaluating pricing power and inflationary risks. Also see National Association of Purchasing Managers (NAPM). A PMI index over 50 indicates that manufacturing is expanding while anything below 50 means that the industry is contracting.

The PMI report is an extremely important indicator for the financial markets as it is the best indicator of factory production. The index is popular for detecting inflationary pressure as well as manufacturing economic activity, both of which investors pay close attention to. The PMI is not as strong as the CPI in detecting inflation, but because the data is released one day after the month it is very timely.

Should the PMI report an unexpected change, it is usually followed by a quick reaction in stocks. One especially key area of the report is growth in new orders, which predicts manufacturing activity in future months.

Release Date: The first business day of the month
Release Time: 15:00 GMT

R

Retail Sales

Measures the percentage monthly change in total receipts of retail stores, and includes both durable and non-durable goods. It is the first real indication of the strength of consumer expenditure. The limits of the retail sales figure, however, lie in the fact that it focuses on goods while ignoring services and other items such as insurance and legal fees. In addition, the report is stated in nominal terms rather than real, thus, not accounting for inflation. The retail sales figure is also subject to sizeable revisions, even when excluding auto sales (core retail sales). Every month the data is released showing the percent change from the previous month data. A negative number indicates that sales decreased from the previous months sales.

This indicator is a big market mover, especially for retail stocks. The data is very timely because retail sales data is released within 2 weeks of the previous month.

Release Date: Second Thursday of each month
Release Time: 13:30am GMT

U

Unemployment

Unemployment is a key indicator. It has a lowly rating because there are previews to it that paint most of the picture before the actual figures are released. Most important of the previews are the initial claims figures, which report the numbers looking for unemployment benefit. All the same, unemployment can still contradict expectations and cause upsets.

Release Date: Around the 7th of each month
Release Time: 15:30 GMT

W

Wholesale Trade

The trade conducted between wholesalers and the retail sector. Not watched particularly closely by markets, but gives an idea of economic activity that may later filter through to the wider economy.

Release Date: Around the 7th of each month
Release Time: 15:00 GMT

Kinds of prices and time units. Charts for the technical analysis are being constructed in coordinates price (the vertical axis) time (the horizontal axis). The following kinds of currency prices represented on charts are being distinguished on Forex:* open - a price at the beginning of a trade period (year, month, day, week, hour, minute or a certain amount of one from these units);* close - a price at the end of a trade period;* high - the highest from prices observed during a trade period;* low - the lowest from prices observed during a trade period.Providing the technical analysis one uses charts for different time units  from 1 year or more till 1 minute. The bigger is a time unit applied for the chart plotting the bigger is a time span to analyze price movements and to determine the major trend by means of the chart. For the short trading charts for less time units are more suitable.Line chart. The line chart is plotted connecting single prices for a selected time period. The most popular line chart is the daily chart. Although any point in the day can be plotted, most traders focus on the closing price, which they perceive as the most important. But an immediate problem with the daily line chart is the fact that it is impossible to see the price activity for the balance of the period as well as gaps  breakups in prices at joints of trade periods. Nevertheless, line charts are easier to visualize. Also, technical analysis goes well beyond chart formation; in order to execute certain models and techniques, line charts are better suited than any of the other charts.Bar chart. The bar chart consists from separate histograms. To plot a histogram in coordinates price  time the points responding to high, low, open and close prices for a time period analyzed should be marked on the one vertical bar. The opening price usually is marked with a little horizontal line to the left of the bar; and the closing price is marked with a little horizontal line to the right of the bar. Bar charts have the obvious advantage of displaying the currency range for the period selected. An advantage of this chart is that, unlike line charts, the bar chart is able to plot price gaps. Hence, it is impossible to see on a bar chart absolutely all price movements during the period.Candlestick chart. The candlestick chart is closely related to the bar chart. It also consists of four major prices: high, low, open, and close. In addition to the common readings, the candlestick chart has a set of particular interpretations. The latter is possible thanks to the convenient visual observation of that chart.The opening and closing prices form the body (jittai) of the candlestick. To indicate that the opening was lower than the closing, the body of the bar is left blank. Current standard electronic displays allow you to keep it blank or select a color of your choice. If the currency closes below its opening, the body is filled. In its original form, the body was colored black, but the electronic displays allow you to keep it filled or to select a color of your choice. The intraday (or weekly) direction on a candlestick chart can be traced by means of two "shadows": the upper shadow (uwakage) and the lower shadow (shitakage). Just as with a bar chart, the candlestick chart is unable to trace every price movement during a period's activity.

by: Tomas Anderson

Here are some of the most common terms used in FOREX trading.

Ask Price ¨C Sometimes called the Offer Price, this is the market price for traders to buy currencies. Ask Prices are shown on the right side of a quote ¨C e.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be bought for 1.1968 UD dollars.

Bar Chart ¨C A type of chart used in Technical Analysis. Each time division on the chart is displayed as a vertical bar which show the following information ¨C the top of the bar is the high price, the bottom of the bar is the low price, the horizontal line on the left of the bar shows the opening price and the horizontal line on the right of bar shows the closing price.

Base Currency ¨C is the first currency in a currency pair. A quote shows how much the base currency is worth in the quote (second) currency. For example, in the quote - USD/JPY 112.13 ¨C US dollars are the base currency, with 1 US dollar being worth 112.13 Japanese yen.

Bid Price ¨C is the price a trader can sell currencies. The Bid Price is shown on the left side of a quote - e.g. EUR/USD 1.1965 / 68 ¨C means that one euro can be sold for 1.1965 UD dollars.

Bid/Ask Spread ¨C is the difference between the bid price and the ask price in any currency quotation. The spread represents the broker's fee, and varies from broker to broker.

Broker ¨C the intermediary between buyer and seller. Most FOREX brokers are associated with large financial institutions and earn money by setting a spread between bid and ask prices.

Candlestick Chart - A type of chart used in Technical Analysis. Each time division on the chart is displayed as a candlestick ¨C a red or green vertical bar with extensions above and below the candlestick body. The top of the extension shows the highest price for the chart division and the bottom of the extension shows the lowest price. Red candlesticks indicate a lower closing price than opening price, and green candlesticks indicate the price is rising.

Cross Currency ¨C A currency pair that does not include US dollars ¨C e.g. EUR/GBP.

Currency Pair ¨C Two currencies involved in a FOREX transaction ¨C e.g. EUR/USD.

Economic Indicator ¨C A statistical report issued by governments or academic institutions indicating economic conditions within a country.

First In First Out (FIFO) ¨C refers to the order open orders are liquidated. The first orders to be liquidated are the first that were opened.

Foreign Exchange (FOREX, FX) ¨C Simultaneously buying one currency and selling another.

Fundamental Analysis ¨C Analysis of political and economic conditions that can affect currency prices.

Leverage or Margin ¨C The ratio of the value of a transaction to the required deposit. A common margin for FOREX trading is 100:1 ¨C you can trade currency worth 100 times the amount of your deposit.

Limit Order ¨C An order to buy or sell when the price reaches a specified level.

Lot ¨C The size of a FOREX transaction. Standard lots are worth about 100,000 US dollars.

Major Currency ¨C The euro, German mark, Swiss franc, British pound, and the Japanese yen are the major currencies.

Minor Currency ¨C The Canadian dollar, the Australian dollar, and the New Zealand dollar are the minor currencies.

One Cancels the Other (OCO) ¨C Two orders placed simultaneously with instructions to cancel the second order on execution of the first.

Open Position ¨C An active trade that has not been closed.

Pips or Points ¨C The smallest unit a currency can be traded in.

Quote Currency ¨C The second currency in a currency pair. In the currency pair USD/EUR the euro is the quote currency.

Rollover ¨C Extending the settlement time of spot deals to the current delivery date. The cost of rollover is calculated using swap points based on interest rate differentials.

Technical Analysis ¨C Analysis of historical market data to predict future movements in the market.

Tick ¨C The minimum change in price.

Transaction Cost ¨C The cost of a FOREX transaction ¨C typically the spread between bid and ask prices.

Volatility ¨C A statistical measure indicating the tendency of sharp price movements within a period of time.

The Forex is essentially risk-bearing. By the evaluation of the grade of a possible risk accounted should be the following kinds of it: exchange rate risk, interest rate risk, and credit risk, country risk.

Exchange rate risk. Exchange rate risk is the effect of the continuous shift in the worldwide market supply and demand balance on an outstanding foreign exchange position. For the period it is outstanding, the position will be subject to all the price changes. The most popular measures to cut losses short and ride profitable positions that losses should be kept within manageable limits are the position limit and the loss limit. By the position limitation a maximum amount of a certain currency a trader is allowed to carry at any single time during the regular trading hours is to be established. The loss limit is a measure designed to avoid unsustainable losses made by traders by means of stop-loss levels setting.

Interest rate risk. Interest rate risk refers to the profit and loss generated by fluctuations in the forward spreads, along with forward amount mismatches and maturity gaps among transactions in the foreign exchange book. This risk is pertinent to currency swaps, forward outright, futures, and options (See below). To minimize interest rate risk, one sets limits on the total size of mismatches. A common approach is to separate the mismatches, based on their maturity dates, into up to six months and past six months. All the transactions are entered in computerized systems in order to calculate the positions for all the dates of the delivery, gains and losses. Continuous analysis of the interest rate environment is necessary to forecast any changes that may impact on the outstanding gaps.

Credit risk. Credit risk refers to the possibility that an outstanding currency position may not be repaid as agreed, due to a voluntary or involuntary action by a counter party. In these cases, trading occurs on regulated exchanges, such as the clearinghouse of Chicago. The following forms of credit risk are known:

1. Replacement risk occurs when counterparties of the failed bank find their books are subjected to the danger not to get refunds from the bank, where appropriate accounts became unbalanced.

2. Settlement risk occurs because of the time zones on different continents. Consequently, currencies may be traded at the different price at different times during the trading day. Australian and New Zealand dollars are credited first, then Japanese yen, followed by the European currencies and ending with the U.S. dollar. Therefore, payment may be made to a party that will declare insolvency (or be declared insolvent) immediately after, but prior to executing its own payments.

Therefore in assessing the credit risk, end users must consider not only the market value of their currency portfolios, but also the potential exposure of these portfolios. The potential exposure may be determined through probability analysis over the time to maturity of the outstanding position. The computerized systems currently available are very useful in implementing credit risk policies. Credit lines are easily monitored. In addition, the matching systems introduced in foreign exchange since April 1993 are used by traders for credit policy implementation as well. Traders input the total line of credit for a specific counterparty. During the trading session, the line of credit is automatically adjusted. If the line is fully used, the system will prevent the trader from further dealing with that counterparty. After maturity, the credit line reverts to its original level.

Dictatorship risk. Dictatorship (sovereign) risk refers to the government's interference in the Forex activity. Although theoretically present in all foreign exchange instruments, currency futures are, for all practical purposes, excepted from country risk, because the major currency futures markets are located in the USA. Hence, traders have to realize that kind of the risk and be in state to account possible administrative restrictions.

The international currency market Forex is a special kind of the world financial market. Trader’s purpose on the Forex to get profit as the result of foreign currencies purchase and sale. The exchange rates of all currencies being in the market turnover are permanently changing under the action of the demand and supply alteration. The latter is a strong subject to the influence of any important for the human society event in the sphere of economy, politics and nature. Consequently current prices of foreign currencies evaluated for instance in the US dollars fluctuate towards its higher and lower meanings. Using these fluctuations in accordance with a known principle “buy cheaper – sell higher” traders obtain gains. Forex is different in compare to all other sectors of the world financial system thanks to his heightened sensibility to a large and continuously changing number of factors, accessibility to all individual and corporative traders, exclusively high trade turnover which creates an ensured liquidity of traded currencies and the round - the clock business hours which enable traders to deal after normal hours or during national holidays in their country finding markets abroad open.

Just as on any other market the trading on Forex, along with an exclusively high potential profitability, is essentially risk - bearing one. It is possible to gain a success on it only after a certain training including a familiarization with the structure and kinds of Forex, the principles of currencies price formation, the factors affecting prices alterations and trading risks levels, sources of the information necessary to account all those factors, techniques of the analysis and prediction of the market movements as well as with the trading tools and rules. An important role in the process of the preparation for the trading on Forex belongs to the demotrading (that is to trade using a demo-account with some virtual money), which allows to testify all the theoretical knowledge and to obtain a required minimum of the trade experience not being subjected to a material damage.