Global foreign currency market is primarily influenced by what we know as forex indicators. As with all currencies, the EUR is no exception. There are many macroeconomic factors that contribute to the movement in the Euro.
Here we take a look at the most important forex indicators that are applicable to the Euro.
10 Most Important Forex Indicators For EUR:
1. GDP or the Gross Domestic Product
The gross domestic product of a country is a key indicator of economic performance with its focus being the value of all its goods and services produced. This measurement of the economic output and activity has been a cornerstone of a nation’s development and future growth. The GDP figures are, therefore, a critical influencer in the price movement of the country’s currency as well. A healthy GDP can be a catalyst to the upward price movement in the forex market.
More relevantly to the EUR, it is the GDP of the Eurozone that is a key indicator to measure the economic wellbeing of the whole region. The Eurozone GDP is compiled and published by Eurostat, the European Union’s statistics office, and the report does influence the Euro significantly.
Any variation that occurs in the inflation figures impacts the exchange rates of a currency. If the inflation rate of a country is low, it can have a positive impact on the exchange rate. A stronger exchange rate results in better purchasing power over other currencies. Conversely, if there is an inflationary condition, the exchange rate tends to fare poorly with the exchange rates depreciating in comparison to other currencies.
Inflation is also related to higher government debt. A country with a higher national debt has lesser chances of attracting foreign investment. As a result, this can bring about an increase in interest rates.
3. Interest rates
Another key indicator that influences the forex currency rate is the interest rates prevalent in an economy. The higher the interest rates in a market, the more the chances of better appreciation on an investment attracting foreign capital. This, in turn, results in the local currency’s exchange rate going up. This phenomenon is called a “hot money flow” and is a contributing factor to a currency rate appreciating in the short term.
Conversely, falling interest rates can reduce the inflow of foreign capital and result in the currency getting devalued. There is a flip side also to this. An inflationary condition that prompts a fall in exchange rates can also see an increase in the interest rates.
4. Current account
The current account of a country can give a clear picture of its economic health. This offers a glimpse of the balance of trade and details of the import and export with other nations. Buying more and selling less leads to a trade imbalance and leads to a current account deficit.
In short, the current account deficit is the state where the value of the commodities imported exceeds that of what is exported. This leads to a requirement for more foreign capital, resulting in an increase in the rate of the foreign currency and a decrease in the local exchange rate.
While a current account deficit has a bearing on a country’s currency rate foreign exchange rate, it may not always be a direct indicator pointing to a weaker currency. With the infusion of foreign debt, there is surplus money that can be used for investments.
5. Unemployment rate
A country’s unemployment rate is directly connected to many economic indicators like the GDP, the industrial production, the retail trade, the consumer price index, the inflation and the interest rate. Similarly, the interest rate that is directly linked to the forex market also has another connection.
Lower unemployment leads to a high demand for goods and services which in turn leads to price raises which results in inflation. The unemployment rate is economically linked to inflation and interest rates.
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6. Consumer price index
The CPI or the Consumer Price Index also is a key economic indicator and, thereby, impacts the forex market too. The data here is reflective of a country’s economic growth from a consumer behaviour perspective. It is also linked to the levels of inflation as the CPI pertains to the variance in prices of goods and services in relation to the purchasing power of the consumers.
As this has a direct correlation with a country’s monetary policy and the prevalent interest rates, there is a resultant impact on the forex market too. The local currency, depending on how the CPI performs will see a corresponding change in rates.
7. Industrial production
Due to its sensitivity to consumer demand and interest rates, industrial production is a vital economic indicator. It measures the output and activity of the industrial sector that includes manufacturing, mining, gas and electric-based industries. A reading that is stronger than forecast has a bullish effect and vice versa.
8. DEM industrial production
Germany is one of the most influential nations in the European Union and its economic health is among the most impactful on the Euro. Its industrial production report, called the Statistisches Budesamt Deutschland, is an important indicator of how the manufacturing sector of the country. The report focuses on the production levels and the output of goods and services generated in Germany.
A healthy report mirrors a positive outlook and infuses confidence in the forex markets. This, in turn, helps contribute to an upswing in the Euro and creates a bullish trend while a weaker report has a negative impact on the rates.
9. PMI Services and Manufacturing
Another leading indicator that provides useful insight to market analysts and investors is the PMI Services and Manufacturing. Purchasing Managers' Index (PMI) is a compilation of several surveys on economic trends in the manufacturing and service sectors that helps to form an opinion on economic growth.
The focus areas of the surveys are new orders, inventory levels, production, supplier deliveries and employment. The surveys include questions about the changes in business conditions, such as improvement, no changes, or deterioration. Investors can use the PMI to their advantage - a higher reading is bullish for the EUR, while a lower one should be taken as bearish.
10. Retail Trade
Retail trade is one of the foremost indicators of consumer spending. This indicator provides information on the money consumers spend at a retail level on various durable and non-durable goods and services over a period of time. Higher retail sales figures point to positive movements while lower figures translate to a decrease in inflation.
Similar to GDP, retail trade is further broken into various sectors. Released by Eurostat, this indicator is calculated on a monthly and annual basis.
The retail sales report contains vital data and sales figures that investors can use to assess opportunities. An index that is stronger than the projected reading has a bullish effect on the EUR and a weaker reading has a bearish effect.
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