Exploiting Information About Economic Growth

Interest rate and inflation levels are the main ingredients of forex price movements,
and economic growth data follows closely in shaping the currency flows. Countries
that are experiencing economic growth generate more jobs in their economy. Consumer
spending therefore increases. In turn, the demand for housing increases as people
have more disposable income and can better afford housing. Other sectors, such as
the auto sector, also experience changes in demand as consumers’ propensity to spend
reflects greater confidence regarding their economic conditions. The transactions of a
modern economy intimately involve global flows of capital as exports and imports are
part and parcel of the vitality of an economy. The term economic growth is really a wide
category. How is economic growth measured and tracked by the forex trader?
The rate of economic growth or development of a country is mainly measured essentially
by its gross domestic product (GDP), so news about GDP becomes an essential
ingredient in shaping trader sentiment about the value of a currency. A slowdown or expected
slowdown in GDP translates into anticipation that interest rates will not go higher
or may even decrease. This anticipation results in pressures to lower a currency’s value.
The importance of economic development statistics in currency trading is evidenced by
the fact that whenever an economic data release is scheduled, the currency market hesitates
in its price movements and then often moves vigorously when the news surprises
the market. In fact, one of the best times to trade is after a news release. Technical strategies
for trading the news will be thoroughly explored in a later chapter.
Traders can gain insight into economic growth and development data by following
several sources that track global economic growth, such as the Organisation for Economic
Co-operation and Development (www.oecd.org), the International Monetary Fund .


By ABE COFNAS