Chapter 6 – Fundamental News 101 (Part I)

NEWS – ECONOMY

The economy is another driver for inflation. In short, if we have a better economy, we will have a higher inflation, a higher interest rate will follow, and higher currency value will be perceived.

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On the other hand, if we have a dreadful economy, inflation will be lower, interest cuts will be considered, and lower currency value will be perceived by the market.

News releases related to the economy are:

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1. News that directly measures the growth of the Economy.
2. News that directly measures the growth of the Job Market.
3. News that directly measures the Housing Market.

News that measures the growth of the economy is:

GDP – Gross Domestic Product – the sum of value added at every stage of production of all final goods and services produced within a country in a given period of time. GDP is the primary measure for the economy’s health.

In summary, if we were to reduce the entire economy into a single number, it would the GDP number.

GDP also comes in as Core GDP and Headline GDP. Core GDP is GDP without the transportation component, which varies from month to month. It is also known as GDP ex. Transportation.

GDP is also related to Retail Sales figures:

Retail Sales – Measures the value of sales at the retail level. A rising trend has a positive effect on the nation’s currency because Retail Sales make up a large portion of consumer spending, which is a major driver of the economy and has a sizable impact on GDP. Traders pay close attention to Retail Sales because it is usually the first significant indicator of the month that relates to consumer behavior and is susceptible to surprises.

Retail Sales is a very important leading indicator for GDP, especially in the United States, a country that consumes majority of its own production. Retail Sales makes up about 2/3 of U.S. GDP.

HIGHER RETAIL
SALES
= HIGHER GDP = HIGHER INFLATION = HIGHER CURRENCY
VALUE
             
       

OR

   
             
LOWER RETAIL
SALES
= LOWER GDP = LOWER INFLATION = LOWER CURRENCY
VALUE

 

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About Kelvin Ching

I'm a professional Forex trader and I have been trading for over 7 years. I was a series 3 broker and a registered CTA with the NFA, the main regulatory agency in the United States, and I have been involved at the highest levels in commodity trading. I also have a background in Information Technology, graphics design, and programming... I'm the co-founder of CurrencyNewsTrading.com, a site dedicated to fundamental analysis and news trading.

Comments

  1. uwah prince ozioma says:

    will love to get more understanding on what mr wayne is saying, that’s exactly my question.thanks

  2. mr wayne says:

    if we have a better economy, we will have a higher inflation, a higher interest rate will follow, and higher currency value will be perceived.

    I dont understand this part , don’t we have bad economy is we got high inflation ??

    Also , if there is high inflation , meaning the value of the money in that country is depreciating , in order to bring the balance back , why would the interest rate be increase ? If interest rate increased means is more expensive to borrow money from the bank .

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