University of Michigan consumer confidence index.
Many Singapore Forex traders use fundamental analysis when trading Forex. Most of the Forex trading platforms provide their traders with an economic calendar where traders may see and follow the major economic news release.
University of Michigan consumer confidence index is a leading economic indicator in the Fundamental analysis of USA economy. It allows us to determine the level of consumer confidence in the economy at the moment, but also determine the prospects for economic developments in the future. In other words, the index measures how USA consumers want to spend the cash.
This leading indicator is calculated from the responses to the survey by telephone, which is conducted among consumers once in a month. The poll is held by the staff at Michigan State University USA.
The index consists of two components: current conditions (sentiment index) and expectations (expectations index). The data of these two components of the index has little impact on the market, the big impact on the Forex market and its participants has the consumer confidence index itself.
About 500 people are involved in a telephone survey. They are asked five questions related to their financial situation and their opinion of the economic situation today and in the future. The calculation is carried out by deducting the percentage of respondents who indicated that economic of USA has improved from the part of those who think that the economy deteriorated, and add 100 to the result.
This leading indicator correlates well with the economic activity in the future, which was confirmed by the U.S. Department of Commerce (Commerce Department), when making a statistical study. The index of consumer expectations is a part of leading economic indicators in the fundamental analysis of Forex market.
University of Michigan publishes a report twice a month: preliminary – the second week (usually on Friday), around the 15th of the month when the poll was taken. And the final one is published after 2 weeks. The time of index release is at 15.00 GMT.
The higher the index of consumer confident, as well as its constituents, the greater is the expectation of growth in the USD currency rate.
How to Use Economic Calendar in Forex Trading
All financial markets, including Forex, always respond to the important economic news and events. That’s why many Singapore Forex traders are looking for important economic news in order to open trading positions. Usually before the release of the news, some well-known economists and analysts give their forecast. When news came out and the forecast coincided with the fact, the market’s reaction is insignificant. If the forecast and the result are different the market usually reacts violently to this mismatch.
For example, a decrease in unemployment rate in the USA was expected or it should have remained unchanged from the previous value. But according to the newly released data the unemployment rate has increased by 1%. As a result, it weakened the Forex currency and the USD fell in price. The greater the difference between the forecast and the fact (which was published in the news), the stronger is the Forex market’s reaction.
It is clear that when we are talking about the news Forex trading, so every Singapore trader has his own trading approach. The basic rules of trading on the news are buying a Forex currency during a situation when the data (news) is better than its forecast, sell when the actual data is worse than the forecast and stay out of the market when the forecast and the actual data are the same. Even knowing these rules, unfortunately the most of traders lose their investments.
Beside knowing the basic rules, a good trader must understand and consider the following points:
1. Forex market always reflects the forecast and actual data.
2. The movement of a currency pair, whether it is weak or strong, after the news release will depend not only on the value of the data, but also on the technical analysis.
3. If the news data is different from the results of technical analysis, most likely this is a strong signal that soon there will be a big change in the Forex market’s direction.
We recommend all Forex Singapore traders avoid trading only on terms of fundamental analysis but combine it with technical analysis. Work only with important news and ignore the minor data that you can find in many economic calendars.
Place orders properly. Remember that very often a Forex trader gets into a “trap of experts”, when the market shows a strong move in one direction which breaks the stop-loss and then recoils in the opposite direction. Before placing orders analyze historical data of the Forex currency during the release of similar news. Plan your actions half an hour before the news release. You should have a pattern indicating the points of entry and exit of the market.
Using the economic calendar you can know the time of the important news release. Basing on this data you can analyze, schedule and plan your Forex trading strategy.