3 Most Important Forex Fundamental Indicators

There are many fundamental indicators available to the Forex traders today. If you count all of them only for the major currency pairs you’ll get more than a hundred distinct indicators — macroeconomic, monetary, economical, financial, weather-based, etc. For many traders it’s difficult to follow all of them, as it requires time and efforts in addition to the necessity to learn about the effect of all these fundamental indicators on various currency pairs. This article lists 3 most important (in my humble opinion) fundamental indicators that have the highest impact on the currency rates and are quite easy to follow as they are reported not so often.

• 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 they have three states of revision (advance, preliminary and final) published with the monthly intervals. GDP strongly affects currency pairs both in short-term and long-term. You’ll have a trading opportunity during the time of the release, as the volatility spikes up, and you’ll 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 value of the currency. Interest rates are usually revised every month or two during the special monetary policy meetings of the central banks. Interest rate decisions greatly depend on the growth of GDP and other macroeconomic indicators. Currency pairs react with the high volatility to the unexpected interest rate changes. It’s 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 USA and they are released monthly. Major currencies usually react with the short-term tendencies to such releases. Weekly reports on jobless claims can also be considered but they aren’t as influential.

In many cases it’s 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 you shouldn’t limit yourself only with these indicators, especially if you pose yourself as a pure fundamental currency trader.

Double Impact of the Interest Rates on Forex

The interest rates, set by the world’s central banks, are widely used in the Forex trading. Their changes are monitored by the traders and investors because the interest rates determine the fundamental value of the currencies. It’s important for every Forex trader to understand the impact of the interest rates on the currencies he trades on. It’s easy to find the interest rate table to know their latest values, but how to interpret them?

In general, the higher the interest rate associated with the currency is, the better it’s for that currency. Higher interest rates attract investors, because they offer a higher yield. Forex traders prefer buying high-interest currencies versus the low-interest ones to gain the difference yield (such trading technique is called carry trade).

On the other hand, the lower interest rates are usually more popular among the traders when the global volatility rises and the world’s financial system experiences problems. The current financial crisis shows that the currencies with the lower yield are the favorites, because they are less risky than he high-yielding ones.

So what to do and how to react on the interest rates? The volatility index (VIX) is a good tool to measure the global interest rates preference. If it’s below the «normal» level of 30%, the high interest rates act as the attractors and the currencies that have high yield grow. If the index jumps up above that level, the traders prefer to move into the less risky assets and the low interest rate currencies gain.