There are many fundamental indicators available to Forex traders today. If you count all of them only for the major currency pairs, you will get more than a hundred distinct indicators — macroeconomic, monetary, business, financial, weather-based, etc. For many traders, it is difficult to follow all of them as it requires time and effort in addition to the necessity to learn about the effect of all these fundamental indicators on various currency pairs. This article lists three most important, in my humble opinion, fundamental indicators that have the highest impact on currency rates and are quite easy to follow as they are reported not too frequently.
- GDP or Gross Domestic Product is the main indicator of the macroeconomic strength of the country. The growth of GDP signals a stronger economy and a more competitive currency because the global investors will have to buy this currency in order to invest in this country, and they will want to invest in it because its economy is growing. GDP reports are usually published quarterly but have three states of revision (advance, preliminary, and final) published with monthly intervals. GDP strongly affects currency pairs both in short-term and long-term. You will have a trading opportunity during the time of the release as the volatility spikes up, and you will be able to adapt your long-term positions to the new data after the release.
- Interest rates are set by the world's central banks and are the main tools of the monetary regulation. Higher interest rates provide more value to the affected currency, while the lower interest rates decrease the desirability of the currency. Interest rates are usually revised every month or two during the monetary policy meetings of the central banks' special committees. Interest rate decisions greatly depend on the growth of GDP and other macroeconomic indicators. Currency pairs react with high volatility to unexpected interest rate changes. It is important to monitor the trends in the interest rates to forecast the long-term trends of the traded currencies.
- Unemployment rates are influential indicators both for currency traders and for the monetary authorities when they set the interest rates. Non-farm payrolls are considered to be the most important of the unemployment indicators in the USA. They are released monthly. Major currencies usually react with short-term rallies or trend reversals to such releases. Weekly reports on jobless claims can also be considered, but they are not as influential as NFP.
In many cases, it is enough to be up to date with these fundamental indicators to understand the possible market trends in Forex. But of course, if you wish to get a more detailed picture of the market, you should not limit yourself to only these indicators, especially if you pose yourself as a purely fundamental currency trader.