Economic Calendar: Five things you need to know to begin trading the news

• Economic releases shape interest rate expectations and rock currencies. 
• Even those focusing solely on the price should at least be aware of the publication time of critical events.
• Below are five basic tips to start using the calendar in forex trading.

Why has the price gone wild at a specific time? The answer usually originates from the economic calendar. New data has come to light, causing investors to change their expectations for monetary policy in a specific country and reprice the underlying currency. Here are the basics of using the calendar.

*Note: This content first appeared as an answer to a Premium user. Sign up and get unfettered access to our analysts and exclusive content.

1) Better or worse

When looking at the economic calendar, what is important and what is not? The Actual figure, when compared to the Consensus, is what matters most. If an economic indicator has come out better-than-expected, the Actual is highlighted in green and if it is worse-than-expected, it is in red. 

In the example below, US Retail Sales were expected to come out at 0.7% (Consensus) and the actual figure was 0.9%, highlighted in green. Therefore, it is positive for the underlying currency, USD. Note: You can receive notifications for your preferred events by clicking the bell icon. 

2) High or low?

In some cases, such as the number of jobs added, a higher figure is better-than-expected and a lower one is worse. In others, such as the unemployment rate, a higher figure is worse-than-expected and a lower one is better-than-expected. In any case, the economic calendar will denote which is which by its color. 

In this example, the US Unemployment Rate came out at 3.6%, higher than the 3.5% expected, thus economically speaking worse-than-expected. 
 

It is essential to note that inflation is somewhat paradoxically both better and worse. While it is worse for most people who have to pay more for goods and services, and is generally a negative indicator for the economy, it is usually good for the currency, as it implies higher interest rates, which make the currency more attractive to carry traders.  

3) More than one indicator

 When more than one indicator is released at once – usually components of the same release – the ones with the highest volatility tend to have the highest impact. On the FXStreet Calendar, the highest volatility level is in red, while orange in medium, and yellow is light. 

For example, if the most important component comes out significantly better than expected, the currency is set to rise regardless of the other figures. When it comes out as expected, the medium and low-tier figures might have a bigger impact. 

The example in the image below are UK inflation figures. Some are better-than-expected, some exactly as expected and some are lower. The most important one is the Consumer Price Index YoY. It came out below expectations. That is why the pound, the underlying currency, responded negatively. 

4) Does the Previous figure matter?

Usually, it doesn't, as investors tend to focus on the most recent data point and ignore the past. However, in some cases, there are revisions to past data which can impact markets. If the latest figure comes out as expected but the one for the previous month is revised down, it is negative for the currency. 

When you see the i icon, it implies there is additional information. Hovering over it will provide an update about the revision.

For example, in the Nonfarm Payrolls report for March, the Actual figure came out at 431K, below expectations for 490K. However, this smaller increase in the number of jobs came on top of upwardly revised data for February – 714,000 vs. the 678K originally reported. That meant that the disappointment from the most recent data release was not as bad as initially seen. 
 

5) Special cases:

There are also special cases like the US Nonfarm Payrolls when expectations change ahead of the release. If new data in the two days before the NFP point in a different direction than what economists foresaw one week before the release, the reaction can be different than what is seen on the calendar and it is important to get ready for this special event by reading updated previews. I personally recommend new traders to avoid trading Nonfarm Payrolls. 
 

Final Thoughts

Understanding the basics of the economic calendar is essential to every trader. I recommend trading economic events first on a demo account to get the feel, and only then moving to a real account later.