How to read an economic calendar and how to use it in trading

It doesn't matter if you are using technical analysis or fundamental analysis when trading the global financial markets, referring to and using the economic calendar is critical to any successful trading strategy.

An economic calendar is a useful tool for traders because it tells them when certain events are happening, and these can have an impact on their trading decisions. By understanding the monthly and yearly events that occur throughout the global economy, traders can use them as indicators for when to purchase or sell financial assets.

 

Table of contents

• What is an economic calendar?
• How to read an economic calendar?
• Example of using the economic calendar
• What are some of the most important events on an economic calendar?
• Benefits of using an economic calendar
• How to use an economic calendar for forex trading?

 

What is an economic calendar?

An economic calendar highlights major national and international events that are likely to impact the price & popularity of the global economy and financial markets and assets in real time. The schedule of upcoming economic events shown in the calendar can potentially impact all financial markets including forex, shares, indices, commodities, and bonds.

No matter what time frame you trade across, or how active you are, you will find it important to keep an eye on economic calendars. Even if you are a long-term forex investor, it will be in your best interest to stay up to date with the major economic releases, their expectation, and final print.

 

How to read an economic calendar?

If you are trading in the forex market then knowing how to read the forex economic calendar properly is essential to the success of your trading journey. To maximise your chances of success in the forex market, you should follow the most important releases and international events on the forex calendar and start your day by checking it every morning.

The economic calendar will show you all upcoming economic news and events happening across the world by default. You can customise the timeframe you want to review by selecting 'Today', 'Tomorrow', 'This Week', 'Next Week', or using the calendar button to choose a custom date range.

By scrolling through the calendar you can see the name of each event, with the date and time zone the event is happening in GMT. The volatility, actual, consensus, and previous data are shown for each event in the calendar table, and when you click the event the actual & deviation, true range, and volatility ratio economic data charts are available.

 

Customise your economic calendar view

When you want to dive even deeper into a specific economic event, category, or even a group of countries, mastering the filter feature will save you a great amount of time and allow you to find crucial data to help with your trades.

The keyword search bar can be used to search for a specific query across global markets e.g. searching 'inflation' would highlight any countries with CPI-related events on the horizon.

The country section allows you to choose from up to 43 countries and only shows economic events happening in the ones you have selected. Include any amount of countries you want to research and filter the results.

Use the volatility slide bar to choose from 4 different volatility levels including no volatility expected, low volatility expected, moderate volatility expected, and high volatility expected.

The last feature that lets you customise the economic calendar and make it much more beneficial is the category selection function. By selecting one or more of the 12 categories, you are able to filter down into the key economic events that will have an impact on the technical analysis and fundamental analysis you have prepared for upcoming trades.

The 12 economic categories available include:

• Bond Auctions
• Capital Flows
• Central Banks
• Consumption
• Economic Activity
• Energy
• Holidays
• Housing Market
• Inflation
• Interest Rates
• Labor Market
• Politics

 

Example of using the economic calendar

Here we dive into an example if we were looking to trade the AUD/USD currency pair. We want to specifically look at news coming out of Australia and the US over the next week. Follow the steps below to get the right results:

1. Click 'Next Week' in the calendar timeframe options.
2. Next, click 'Show Filters' and tick 'Australia' and 'United States'. This will only show events that are relevant to these two countries.
3. In the category section, you can choose to only view specific economic categories like 'Central Banks' or 'Inflation'. For this example, we will leave the categories unticked which will show us all categories in the calendar.
4. Lastly, we will use the volatility slider and slide it all the way to the right to only show events with high volatility expected.

This is what the economic calendar should look like:

What are some of the most important events on an economic calendar?

Each of the announcements and news events below is a big driver of volatility, especially in the forex markets. None move the market more than Non-farm payroll data (NFP), which is released on the first Friday of every month and reports on the health of the United States jobs market. Other economic news with significant impact includes central bank interest rate decisions and the consumer price index (CPI).

Here are the most impactful financial events that move the markets on a monthly basis:

• US Non-farm payrolls (NFP)
• Employment Indicators (labour force, payroll, and unemployment data estimate)
• Central Bank rate decisions (central bank minutes/statements)
• Consumer Price Index (CPI) or Inflation
• Retail Sales
• Unemployment Rate
• Consumer Confidence Index
• EIA Crude OIL Inventory
• OPEC Meetings
• Produce Price Index (PPI)
• Gross Domestic Product (GDP)
• New Home Sales
• Durable Goods Orders
• Existing Home Sales
• ISM Data
• Trade Balance

What events should forex traders look for?

While it's wise to stay on top of all the major economic announcements, there are a handful of events that forex traders should pay close attention to. These include:

• Non-farm payroll (NFP) Reports
• Consumer Confidence Index
• Retail Sales Index
• Central Bank Interest Rate Decisions
• Durable Goods Orders

 

Types of economic indicators

When using the economic calendar there are some important indicators that every investor needs to understand. The two main economic indicators to understand are:

Leading indicators: Leading indicators are any measurable or observable variables that look forward at future outcomes and events, predicting a movement or change. With a leading indicator, you are basically trying to predict the future, forecasting the timing, duration, and significance of future business and economic trends.

Lagging indicators: Lagging indicators are the opposite of leading indicators, where instead of looking forward you are looking back at whether the intended outcome was accomplished. With a lagging indicator, you are able to confirm whether a long-term trend or shift in the economy has actually happened. Lagging indicators are typically easy to measure, identify, and compare against though one downside is that they may provide important insights too late, with no time to do anything about them.

 

Benefits of using an economic calendar

The economic calendar is such a helpful resource with really no downside. Traders of all skill levels can use our free economic calendar to assess the indicators of all important events across all markets including forex trading, commodities, indices, and more. The main benefits of an economic calendar are:

Planning for future events

If you are actively trading on a particular currency pair and review the economic calendar daily, you can see any events that could create market volatility for those currencies. For example, the foreign exchange calendar would allow you to plan ahead if NFP reports or a US Federal Reserve news release are coming up.

The calendar provides a macroeconomic view of the market. With some key factors like inflation and employment data having an impact on central banks' decisions, it helps to be prepared for the events that could signal these interest rate spikes.

Risk management

Risk management is one of the key elements of trading that all investors should include in their strategy. Extremely volatile market conditions are a risk in itself and the economic calendar presents an opportunity to highlight any upcoming events that could cause that type of volatility. Being aware of these events will allow you to plan your trades accordingly without further complicating your trading strategy. 

Having a strict exit strategy like scalping, in place could mitigate the chance of risk. In the chance of high-impact news events happening which could see huge spikes in the market, this strategy focuses on taking small profits off small price changes. So in case an upcoming event creates a huge swing in the market, you have already taken profits along the way.

Understanding how the market operates

A benefit of the economic calendar that greatly improves beginner investors is understanding how the global markets work. Without actively making any trades, a new starter in the trading world can monitor the calendar and live charts to make the connections of what economic events are impacting which markets. Studying the movements can give you greater insight into a potential market you may want to enter and can teach you where to find a great entry and exit point.

 

How to use an economic calendar for forex trading?

You now understand what the economic calendar does and how to use it to its full potential. Starting watching for upcoming news events and use these three tips to trade the forex market:

1. Intraday trading to take advantage of volatility

Nothing makes an intraday trader more excited than volatility.

If the markets aren’t moving, then intraday trading can be an absolute grind.

Key economic data releases are an intraday traders’ shining light. The golden path to pips so to speak.

One of the most common ways for intraday traders to trade big data releases is via breakout levels.

Leading up to Non-farm payroll data, it isn’t uncommon for markets to consolidate or ‘quieten down’ in anticipation of a big move.

So, you want to get all your key levels set for both the long and short sides.

Let’s take a look at the Eurodollar around the NFP release on the 4th of January 2019.

First, you want to get clear on a few things, including:

• What is the expectation or consensus? In January, the consensus was for 177,000 jobs to be added. But it printed at 312,000.
• What was the previous month's figure and what happened?
• Did last month’s go above or below expectations and what was the price action like?
• You can also go to Twitter and type in #NFPGuesses, which will give you a huge list of analysts’ forecasts plus every other trader on Twitter.

Now you are clear on the expectations and previous results, you want to set your key levels.

At the very basic level, you can see we’ve placed a support and resistance line on the chart leading up to the announcement.

It is not uncommon for markets to run on the expectation or hint of the figure printing above or below expectations.

Your next steps will depend on you and how you like to enter the market.

If you are fast on the keyboard, you may like to manually enter your orders as the market breaches your key levels.

Alternatively, you may like to create complete entry orders with respective take-profit orders set on both sides.

Here is what happened on the NFP data release on a 5-minute chart for January 2019.

2. Swing trading riding the bigger moves with the trend

The second style of trading you could employ when trading economic data releases is swing trading.

Swing traders look to trade the swings, and their motto would be to buy weakness and sell strength.

Going back to October 2018, the Eurodollar was in a steady downtrend.

On the 12th of October, the market hit the longer-term moving average and fell lower. It then rallied again up to the 15th of October hitting a double top, in a downtrend and overbought. Plus, the non-purists might suggest there was a hint of bearish divergence as well.

At this stage, a swing trader would be focused on trading this short and looking for any unusual strength to sell into.

An economic announcement at these levels would provide the perfect sell conditions (hindsight permitting in this example).

On the day of the price spike, you had the EU Brexit Summit, Germany’s Economic Sentiment, Europe’s CPI data, and ECB’s Praet speech. Plenty of market-moving releases there.

So, a swing trader might look to set limit orders knowing there could be a fake run higher and then sell the strength, as the Eurodollar had been in a downtrend since late September.

3. Momentum trading for breakouts

Continuation patterns are a huge favourite with technical traders.

Chart patterns like ascending and descending triangles, wedges, pennants, double and triple tops, and bottoms are handy for classifying the type of market you are trading right now.

Let’s say a market is consolidating into an ascending triangle pattern leading up to an important economic release.

You may like to scope out your key levels, draw your breakout levels, and use the economic calendar to note the expectations and consensus for the upcoming release.

Your bias at this point is the continuation, but as a technical trader, you will find it best to know which major economic release is coming up and then how it might play it if the news is positive.

If it is positive, then you have all your levels set, and you need to pull the trigger.

If the news is negative and it drops back down, you may want to consider it a failed long setup and move on to the next trade.

So, there are three interesting ways you may like to take advantage of the economic calendar and upcoming data releases.

Hone your entry and exit criteria and be sure to always check the upcoming economic releases before you place any trades. It truly is that important.

 

Main features on our economic calendar

The best way to discover the features of our economic calendar is to use it! But here is a quick breakdown of some of the features that help improve traders' experience when they view individual economic data releases.

• Find the most important announcements from over 40 countries within seconds. Our broad range of countries gives you access to up-to-date global fundamental releases.
• Customise the calendar to only see the events you need. With many categories to choose from, select only the most important to your trading strategy and the country and level of volatility.
• Drill down into the data. By clicking on certain events in the calendar, traders gain access to more data to help them make more informed trading decisions.

 

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This information is not to be construed as a recommendation; or an offer to buy or sell; or the solicitation of an offer to buy or sell any security, financial product, or instrument; or to participate in any trading strategy. It has been prepared without taking your objectives, financial situation, or needs into account. Any references to past performance and forecasts are not reliable indicators of future results. Axi makes no representation and assumes no liability regarding the accuracy and completeness of the content in this publication. Readers should seek their own advice.