Economic signals and their affect on Forex rates

Economic indicators are essential to forex traders, because they represent vital data in evaluating the underlying strength or weakness of a currency’s economy. While their use short-term is highly subjective, with them as a gauge for long-term trends can be extremely effective.

These indicators usually belong to two categories: Trade Indicators and Capital (cash) flow indicators. From an economic perspective this should add up. Trade and capital flows are two sides associated with balance of payments for an economy. The balance of payments for just about any economy tracks most of the money moving in or away from an economy. A growth of money moving out of an economy will likely to be harmful to the currency while a rise in the cash getting into the economy will undoubtedly be best for a currency.

Trade indicators tell us what’s going on because of the current account or first 1 / 2 of the total amount of payments. Capital flows report what is happening within the capital account or even the second half for the balance of payments. All economic indicators will give you details about one region of the balance of payments or perhaps the other and sometimes both.

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