Apowerful response force that moves forex prices, as well as other markets, is business
and consumer confidence data. These reports are results of extensive professionally
designed surveys that are conducted on a regular basis in many countries.
When these survey results are released, they provide important information on expectations
regarding the economy of a country. This information is seriously assessed by central
banks in determining their next moves in controlling inflation. Growth in business or
consumer confidence has inflationary potential, while a decline in business or consumer
confidence portends economic slowdown. When these releases come out, they move the
market, especially if the results are surprising.
Beyond having an impact upon their release, confidence indicators can also provide
a leading indicator for the forex trader. If business confidence is at its highest in years,
the market will interpret it as positive for the currency because greater confidence indicates
expansion and growth of an economy. Where there is expectation of expansion
and growth, there is the concomitant expectation of interest rates not going lower and
possibly going higher. These confidence surveys are not perfect predictors of resulting
currency moves. They are one of the most important ingredients in the mix of fundamental
forex factors.
Some of the important confidence indicators are listed on page 42 and should be followed.
Their release times are tracked in the numerous economic calendars available,
and strategies for trading these economic data releases should be learned by traders.
It is interesting to note that every major country has its version of investor and business
confidence indicators. These form in effect a leading indicator about currency
directions.
By ABE COFNAS
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