Forex traders should be keen on significant economic data releases that could shed light on the strength of a country’s economy and how that affects the valuation of the country’s currency. One of the most important economic indicators is the Gross Domestic Product (GDP). This data set is essentially the total monetary value of goods and services produced in a nation’s economy.
Three Versions of GDP Data
In many countries, including the United States, there are three versions released when reporting GDP. These are advanced, preliminary and final GDP numbers. Most professional traders will put more emphasis on the advanced reading when making trading decisions. However, it is important that forex traders look at the relation between the three versions and not just focus on the individual releases.
Forex traders will pay close attention to the differences between the various versions of GDP figures. For instance, if the final GDP reading is significantly lower than the advanced reading released earlier, it could lead many forex traders to be more negative in their outlook on the country’s currency’s price valuations. In some cases this can lead to a decline in a currency’s valuation despite a positive number that indicates an economy is growing.
Comparison to Estimates
Not only should forex traders consider the actual GDP figure released, they need to compare this with estimated data and whether the actual GDP figure is higher, lower or the same as the previously estimated number. If the GDP reading is lower-than-expected, it is more likely to be bearish for the currency. On the other hand, a higher-than-expected reading is likely to lead to an increase in valuation for a country’s currency. An expected reading may result in a mixed market or a market that trades more sideways rather than up or down.
However, how one interprets GDP data will depend upon the specific circumstances. Market sentiment should also be taken into consideration when creating forecasts for currency price trajectories. Other economic fundamental factors, politically significant happenings and technical analysis should also considered.
Writer Bio
Le Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.
Sources:
- http://www.investopedia.com/terms/g/gdp.asp
- http://fxtrade.oanda.com/learn/intro-to-currency-trading/fundamental-analysis/monetary-policy
- http://www.investopedia.com/articles/forex/11/trading-gdp-like-a-currency-trader.asp
- http://www.investopedia.com/university/releases/gdp.asp
