What is the Economic calendar and how to use it to trade forex?

The economic calendar is a tool which displays all the news and economic releases which could impact on a currency. The information is then displayed in a table format, as a calendar, informing of the day, the time, what the release is and the impact it normally has on the market. For example, is it a high impacting piece of data, does it usually have a medium impact or is it considered a low impacting release. Furthermore, the calendar can also give you an idea of what analysts are expecting from the release.

 

Why is it important to keep a close eye on news releases?

Both economic and political developments can have a big impact on volatility for the currency involved. For example, GBP/USD is trading at $1.4010 before the release of the UK Consumer Price Index (CPI). The data shows that inflation has unexpectedly increased to 3.2%. The pound spikes to $1.4090. Whilst this is not a real example is serves the purpose to show what can happen on a data release.

 

In line with expectation / better than expected/ worse than expected

Often the key point is how the data release measures up against market expectations. So, returning to the example, if the market is expecting inflation to be 3.2% and it comes in at 3.2%, then the market reaction is expected to be limited, if it even has one. However, on the other hand if the data surprises to the downside or the upside, this can potentially provoke a market reaction. The strength of the market reaction and the amount of volatility that comes into play, depends very much on how important the release is considered (high, medium or low).

With this in mind, it is important to know when the high impacting data releases are. This is because the release could suddenly cause a big increase in volatility or a change in direction, that you weren’t expecting, just as you placed a trade.

 

Therefore, using an economic calendar is important when you trade to assist with the timing of major event movements. Vantage FX provides its clients with a clear, precise economic calendar to help with trading. This award-winning broker not only provides the detailed weekly calendar on the website, but as a client of theirs you also have access to the MT4 economic calendar on the MT4 platform.