leading economic indicators and fundamental analysis

leading economic indicators and fundamental analysis.

Leading economic indicators are used to identify the currency strength and weakness by analyzing economic and political forces that may influence the supply and demand of any country’s currency.

The fundamental analysis is a process of examining future moves of a currency’s strength or weakness of that country’s economic growth outlook.

However, fundamental traders research leading economic indicators data, which is published monthly and quarterly at a particular time by governmental agencies and the private sector.

It’s essential to understand which economic indicators are the most important and what they represent financial data.

These economic indicators indicate the most significant impact on the financial markets simply because we know that the US country is the world’s biggest economy.

We compare the US economy to other countries for trading.

Now let’s take a significantly closer look in more detail at the leading economic indicators.

Gross Domestic Products (GDP).

Gross Domestic Products

The Gross Domestic Product is commonly named a (GDP) that is one of the primary indicators to measure a country’s economy’s health.

And it represents the total market value of all goods and services produced within the country during the year.

If the (GDP) number is positive, improving figures from previous month and quarter data is called the country’s economy performing better.

And if it is a negative figure from previous means decreasing or slowing that country is making less money and becoming less competitive.

Now since a GDP figure itself is often called a leading indicator.
Most traders focus on the two reports that are issued in the months before the final GDP figures.

The advance report and the preliminary report, importantly here significant revisions between these reports, can cause considerable volatility.

Inflation (CPI) leading economic indicators.

Consumer Price Index

Inflation is a very prime indicator of the leading economic indicators of a country’s economy.

Now the Consumer Price Index(CPI) is likely the most key indicator of inflation, and it represents the changes in the level of retail prices for a basket of particular goods and services.

Now if the prices for the basket of consumer goods are increasing, that means inflation is also growing.

Remember, inflation restricts directly to the purchasing power of that country’s currency.

So if the economy develops in normal conditions of the country, then such increase in inflation can significantly lead to that country’s central bank increasing interest rate, and time when many major central banks are beginning on Quantitative easing (QE) to stimulate the economy.

Employment Data (US non-farm payrolls).

Employment data Non Form Payroll

Employment data (Non-Form Payrolls) is also a significant indicator as it reflects the overall health on the economy or business cycle.

Now to understand how an economy is functioning, it is essential to know how many jobs are being created and what percentage of the workforce is actively working and exactly how many people are claiming unemployment benefits.

US non-farm payrolls(NFP) is the most critical data should strengthen the US dollar unless it is significantly increasing.

Other Leading Economic Indicators.

Other Leading Economic Indicators

Now some fundamental leading economic indicators like trade balance, the producer price index(PPI).

And other indicators such as the purchasing managers’ index (PMI) and industrial productions are all essential data, and they measure production and demand.

Keep in mind that if a country’s goods are in high demand that same country’s currency will also be in high demand.

Retail sales and housing data are also essential to keep an eye on both because they too show the overall strength of consumer spending and retail stores as well as consumer demand sentiment which indicates broad consumer spending patterns and in turn the immediate health or direction of an economy.



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About Muhammad Shahid

My name is Muhammad Shahid, MBA in Finance from IBA, University of Sindh, Professional Forex Trader & Trainer, I have taught more than 850 Students throughout the Sindh.

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