Traders consider many factors while analysis the market fundamentally. Inflation, GDP, NFP, CPI and PPI are the few major indicators which we will discuss here
- Inflation : Inflation is a sustained increase in the amount of currency in circulation – which in turn increases the price of goods and services. With this in mind, inflation is one of the most important of all Forex fundamental indicators, as it demonstrates how healthy an economy is. It is important to understand that even through the power of central banks, governments can’t really control inflation.
- GDP : Gross domestic product (GDP) measures the total value of all goods and services produced in a country within a given period. GDP is considered to be one of the best overall fundamental indicators of the economy for Forex. From an economic theory’s standpoint, it’s all very simple – growth in GDP indicates economic growth. However, the relation of GDP to inflation – and thus to currency – is a matter of debate.
- NFP Report (Non Farm Payroll) : The percentage of the unemployed part of the population has a direct effect on the spending patterns – and by extension, on the economy as a whole. An increase in unemployment has a negative effect, as less people are getting paid regular wages. Unemployment can’t drop below a certain level, known as ‘aggregate unemployment’ – and for every nation it is different, usually between 2% to 6%.
- Consumer Price Index (CPI) : The Consumer Price Index (CPI) measures the weighted average price of a household basket of goods and services (transportation, food, medical care), with 100 being the base value. For example, if today it costs X USD to purchase a set of goods and services the CPI will read 100. When in a decade it would cost 25% more, the index will have moved from 100 to 125.
- Producer Price Index (PPI) : The Producer Price Index (PPI) works much like the CPI, only instead of measuring the cost of ready goods, it measures production costs. PPI does not consider volatile items such as energy and food to receive ‘cleaner’ readings. Tracking production costs can assist in evaluating how production level prices may be affected, which in turn can help traders to understand the possible impact on an economy.