Beginners Guide to Forex Factory Economic Calendar

Introduction

One of the key things, you must monitor as a Forex Trader is the Economic news, because of how it affects the fundamental view of a currency at a specific time. Ignorant traders assume ForexEconomic Calendar is not important, I say traders like that can be compared to pedestrians who are backing oncoming traffic. Traders who monitor scheduled economic news and also anticipate the news are the pedestrians facing oncoming traffic, it’s like taking necessary precautions in a dangerous environment.

One of the most popular economic calendars is Forex Factory and they are popular for two basic reasons.

–          They provide a quick updates when important news events are released.

–          Has an easy layout.

Step-by-step guide to setting up a Forex Factory Calendar

Step 1: Open the Forex Factory website

Type (www.forexfactory.com) in the address bar of your browser. This will direct you to the home page of the Forex Factory website.

Step 2: Select the Forex Factory Calendar

Select “Calendar” on the main toolbar near the top on the website.

Step 3: Check your current time

It is important the time displayed at the top left corner of the webpage is your local time.

Step 4: Correct the time

If the time displayed is not your local time, you can change it by clicking on the time displayed next to “Login” at the top of the website which directs you to the time settings section. Setting the correct time zone is very important because this will determine the correct time for each news event, and you can use this to make decisions. You also have the option to turn on or off the Daylight Savings Time (DST) as well as being able to toggle the time format to show either am/pm or 24hours time.

–          You can easily click on “Match Automatically and your time zone will change.

–          Ensure you save all changes made by clicking on “Save Settings”.

–          Click “Calendar” to return back to the calendar.

It should be displaying your local time by now.

Step 5: Setting the Event Display (Filter)

If you have followed the steps above carefully, you should have the Forex Factory Calendar synchronized with your local time.

Setting the event filter should be the next step in setting up your Forex Factory.Here, you determine the type of news and events that is suitable for you. To customize the event filter:

–          Click the “Filter” icon on the top right corner while in the calendar tab, it brings up a menu.

–          Select settings in the menu, it displays announcements.

The screen displayed when you click “Filter” gives you access to filter events by expected impact, event type and currency.

Hover the cursor/mouse on the boxes under “Expected Impact” to get the explanation for each of the options.

In summary, red equals high-impact, orange is medium-impact and yellow represents low-impact news. It is important to focus on the medium and high-impact Forex factory news events as this gives a complete illustration of what to expect over the coming days without cluttering the economic calendar with news that will have little impact on the markets.

Once you have everything set in your preferred style, click “Apply Filter” to start showing only the events and currencies you have selected.

Repeat these steps if you want to modify your settings and filters.

Step 6: Additional information

What is displayed primarily is the ‘event name’, ‘expected impact’ and ‘scheduled time’ but if you want additional information, you can expand each event to get views to information like ‘frequency’, ‘source’, and ‘history of event’.

As a technical trader the advantage of using Forex Factory lies in the scheduled time and the expected impact of the news. If not used for this purpose then a news calendar might be more of a distraction than an asset.

Step 7: Display period

You can change the period of the announcements that you want to display by selecting “navigation” on the left sidebar of the website. I usually advise traders to select the current week, having a weekly view gives a good idea of what is expected on the scope for the week ahead.

Lastly, bookmark the website so the settings are saved next time you visit the Forex Factory calendar via the bookmark link.

WHY FOREX TRADERS NEED ECONOMIC CALENDARS

There are four main reasons why Forex traders need Economic calendars:

·         There are some traders who do not use Forex News as pointer in their trading, the reasons for their decision ranging from the volatility to instability at the time of release of the news.For traders like that, the best time to trade for them is after the news has been released and the market settles down then they start seeking trading setups to trade.

·         A lot of Forex traders need to use Forex calendar to move their stop loss closer so as to lock in a lot more profits once they know that a major news is about to be released. In this case, they know fully well that the market can either go up or down and this can work against their current running trade and eat up the profits they might have accumulated.

·         Some Forex traders simply want to see what time and date the Forex news is going to be released and as the time approaches what they do is to exit all their trades. They do this because they have made sufficient profits and don’t like the chance that the news might turn around the market and they will end up losing their earned profit.

·         Forex traders know it is important to know the type of news coming out that might have a higher chance of impacting the Forex market and they want to capitalize on the resultant market move that happens when the news is released.

11 important Features of the Forex Factory Calendar

v  Legend

The legend on Forex Factory calendar simply tells you what each of the objects, symbols and colors that you see on the calendar means. Here is what you have in the legend:

1.    High, Medium and Low impact news are represented by objects looking like a folder that its top has been bitten off. You also have a grey color non-economic legend.

2.    Actual pending is a green round circle with a rotating white arrow inside, and you can see this only when it is just few minutes or seconds from the news being released.

3.    Related stories symbol appears like an open folder with a white paper sticking out.

4.    Forex Factory Alert appears like a brown folder with a star sticking out of it. It appears only when Forex Factory wants to alert you about something that you may not know about, you can find out what you may not know about by clicking on that icon.

5.    Green numbers on the calendars represent better forecast or revised better figures.

6.    Red numbers mean worse forecast or revised worse.

v  Time

One key thing is setting your time on Forex Factory website to your local time zone because the time on the website is usually not your local time zone. This actually makes it less convenient to calculate and its better if you convert the time zone to your own local time.

v  Navigation Column

There a few things that can be found on the navigation column and these include:

1)    A full calendar of the current month and if you click any of those dates for the month you will be directed to a page where you can find the schedule of what Forex news is going to be released. Alternatively, you can click dates in the past and it also directs you to a page where you can see what news was released on the certain date in the past.

2)    You would also find a few short cut links such as “today, tomorrow, yesterday, Up Next” etc. and when you click any of those, they do the same thing as above.

v  Currency column

The currency pairs that are going to be possibly impacted by the release of Forex news are usually listed in the column list. For example, if Australia is going to make an interest rate announcement, any currency pair that is pegged to the Australian Dollar will be affected.

v  Impact Column

This column tells the potential severity of the impact of Forex news is going to have on a currency pair. The impacts are color coded into three colors:

1.    Red= Forex news with high impact expected

2.    Brown= Forex news with medium impact expected

3.    Yellow= Forex news with low impact expected

v  Name of News

This particular column lists all the names of the news that are scheduled to be released.

v  Detail column

You have a yellow folder icon in the detail column. When you click that icon, a page opens up so you can read a lot more detail about the particular news and this include details such as:

1.    Source of the Forex news

2.    The kind of effect this news has on the currency

3.    What the Forex news measures

4.    Past history of the actuals and forecast

5.    The next date of release of similar news.

v  Actual Column

In the actual column, you get to access the actual figures that were released during the news. For example, if the stock market index increment released was 5.2%, then you will find 5.2% in the actual column.

v  Forecast

What you find right after the actual column is the forecast column. It shows you what economists were forecasting before the news was to be released, whether they were right or wrong is usually determined by the “actual” that comes out in the actual column. Both the forecast column and actual columns are quite important because many traders react to the differences in the forecast and the actual. A good example of this is: If economists were forecasting that the Bank of America was going to decrease the interest rate from 2.5% to 2% this month? This forecast will make traders to expect, and this is based on the forecast that the actual figure would be 2% but if after the news came out and the interest rate remains the same figure at 2.5%. The resultant effect of this is that there will be lots of buying.

v  Previous column

The previous column simply shows you that the previous “actual” figure was for that particular news.

v  Graph

When you go to the graph column and click the graph icon, a page pops up displaying a graph of the actuals against the forecast figures of the news from the past dates that were released.

UNDERSTANDING FOREX FACTORY EVENTS

Setting up the Forex Factory calendar as discussed above is one thing, knowing how to use it properly and effectively is another. The first thing for you to understand is that you only want to focus on market-moving events. This depicts setting the filter to include only the medium and high impact news events. Once you do this, you won’t have to go through the low-impact news to find the events that are most likely to cause increased volatility.

We will discuss the major news events categories you should look out for on Forex Factory as you trade Forex below.

Ø  Monetary Policy Announcements

Central banks do issue monthly rate statements along with their views about economic situations and this can be found in the news section of the Forex Factory as well as MetaTrader 5 trading platform. As much as there are many data points that influence market expectations about rate changes, none are as important as the monthly central banks comments on its outlook for the economy.

Most traders ask questions such as “Why do central banks charge short-term interest rates?  “What drives Interest Rates?”  Central banks lower the interests to stimulate growth, and also raise them to keep inflation low. Central bank’s benchmark lending rate is an attempt to strike a balance between these two needs. What determines which need takes priority is the economic conditions. In poor economic state, promoting growth is usually the main priority, hence, lower rates. While during good economic state, cooling inflation is top priority, hence higher rates.

Forex movements are actually influenced by changes in market expectations about pace of rate change than actual rate changes themselves. Let’s give an example for a better understanding, if central bank 1 and 2 announce equal interest rate increases on Forex Factory and then it happens that Currency 1 shoots higher and currency 2 sells off. The plausible reasons for this occurrence would be:

·         The rate hike for currency 2 was anticipated and priced in, whereas for currency 1, it came as a surprise and markets view it as more valuable and bid up its price.

·         Markets believe the rate hike from central bank 1 is just one in an ongoing series of future rate increases. However, in the case of currency 2, markets believe the rate hike will not be followed by further increases, or if it gets worse, the next move may be rate cuts, so it’s better to take profits and sell currency 2.

This situation narrated above is similar to earnings announcements for the stock market. What determines if a particular stock rises after its quarterly earnings announcement depends on both whether the announcement bets expectations and whether it raises or lowers expectations for the future. It is important to know that news that affects interest rate expectations affects currencies as well just like news that affects earnings expectations influences stocks. In like manner, any change in conditions that indicates a central bank is more or less likely to change its rate policy can also impact interest rate expectations and thus Forex prices.

In summary, expectations of rising rates are a reliable and potent fuel for higher currency price, and expectations of falling rates are the opposite.

Ø  Macroeconomic Data and Indicators

There are different factors that could influence currency prices and they include:

·         The health of the underlying economy: This means the increased demand for that economy’s currency from exports and foreign investment in local hard assets like businesses and real estate.

·         The direction of interest rates and central bank policy: As noted earlier, faster growth makes inflation more likely and thus further rate increases.

·         Central banks use rate increases to reduce inflation risk

·         They like to raise rates in times of growth to allow room to lower rates when their economies start slowing and need a boost.

Below are guidelines to identify which data are important:

ü  The more directly it affects interest rate expectations, the more influential it is. This is because economic conditions change, some indicators become more important to central bank policy.

ü  During recessions, when inflation is less of a concern, growth-related data like GDP, jobs, consumer spending, etc., become most important. In good times, when inflation is more of a concern, inflation data like the CPI and PPI become more important.

ü  If the central bank of a large economy indicates what macroeconomic data are most important in guiding its rate policy, these data become a market focus.

ü  Major fundamental data from the largest economies like the United States, the European Union, China, and Japan are more influential on global economic health, and forex markets than data of smaller economies like Switzerland, New Zealand, or Canada. What this depicts is that the larger the economy, the more important the data.

ü  Influence varies with the type of economy which is why for export-based economies like Japan and Brazil, Russia, India, and China (the BRIC nations), data on exports and industrial production are more important than for nations for which GDP is more based on consumer spending and financial products like the United States and The United Kingdom.

Rather than focusing on each of the key fundamentals, we will provide a brief listing of the macroeconomic indicators and data to watch on the Forex Factory calendar as major headlines (HIGH IMPACT). It is important for you to know that details of these may vary from country to country. There is no need for you to memorize them rather, check any good online economic calendar like those of Forex Factory calendar for such information. These rank events by importance and include explanations of the significance of the data. Forex Factory calendar is better on general significance of the data.

§  Quarterly Gross Domestic Product (GDP): Typically, there is an advanced or preliminary reading about four weeks after the quarter ends, and a final one about three months after the quarter ends. The preliminary reading is what carries the most influence because the final reading rarely deviates from it.

§  Monthly jobs report:  The more important the economy, the more important the report. Jobs take on even greater significance in economies like the United States or the United Kingdom, where consumer spending is a more important component of GDP than manufacturing or exports.

§  Inflation data: Typically monthly CPI and PPI.

§  Purchasing Manager’s Index (PMI) for both manufacturing and service sectors: The key point is that a reading over 50 suggests expansion, and under 50 suggests contraction. They provide a measure of the health of the manufacturing and service sectors, respectively.

§  Housing Data: This includes a range of monthly reports like housing sales, new home sales, existing home sales, new building permits, etc. Considered an indicator of what stage the economy is in within the current business cycle. It is also a sign of the health of the banking sector and consumer lending, consumer spending, and jobs, given the significant impact housing has for these sectors.

Ø  Geopolitics

All financial markets can be influenced by major geopolitical events like news of political instability in key countries or military actions. However, few are as sensitive as the Forex market because of its extremely international nature. Certainly, certain currencies and their related pairs will be especially sensitive to related local developments. As stock prices reflect market sentiment about companies, so do currencies for countries. Thus, they are responsive to geopolitical changes as long as these affect expectations for interest rates, growth, trade and capital flows, and so on for the underlying economies.

Because the professional traders who manage the big money in Forex focus first on risk management, the first rule of trading based on geopolitical unrest is that markets tend to sell first and ask questions later. In other words, markets are prone to volatility in times of serious unrest. Remember, whenever professionals fear any threat to their capital, they quickly retreat into cash, especially safe-haven currencies, until the political risk fades.

In summary, a general rule in all kinds of financial markets including Forex is that politics usually trumps economics. This means that a good or bad geopolitical data tend to outweigh economic data.

Forex Factory calendar helps you to know when market-moving news is expected and thereby prepare for periods of high volatility.

CONCLUSION