If you are interested in fundamental forex trading then there is one economic indicator that definitely needs to be on your watch list and that is the gross domestic product or GDP for short. The GDP reflects the value of all goods and services produced by the economy during the time frame measured; taking into account consumer spending, purchases made by the government, inventories of private companies, construction costs, and the foreign trade balance. This thorough analysis of the economic activity within a country makes the GDP an important part of forex fundamental analysis.
Unlike other indicators used in fundamental forex trading the GDP is released on a quarterly basis which makes it less prone to fluctuations as the data is gathered over a larger period of time. It is also very comprehensive as it incorporates the information from many other economic indicators and combines them with the result being the GDP. So in a sense the GDP is an indicator of economic indicators as it brings all of the data from the other major economic indicators together to provide a clear picture of the state of a country’s economy.
How To Use The GDP In Fundamental Forex Trading
For your trading you are going to want to look at the rate of growth of the GDP. It is generally believed that a annual GDP growth rate of 2.5-3.5% is best for the economy of a country. Any lower and it may indicate future trouble for the country in terms of economic growth and may even foreshadow economic contraction. If the GDP is higher than 2.5-3.5% then it may signal inflationary pressures that may hurt country’s economy and value of its currency in the long run. So, as far as fundamental forex trading is concerned if the growth rate of a country’s GDP is in the optimal range of 2.5-3.5% then there is a strong likelihood that the value of its currency will increase. Too high above or below this range may signal problems that may lead to a future decline in value of the currency.
GDP is a a great tool for any fundamental forex trader. It takes a huge amount of information and compiles it into a simple number. This makes it both easy to understand and powerful, however it is not a magic bullet. You can’t just look at the GDP, make a trade, and then having everything work out. GDP is a tool to be used in conjunction with other tools to make an informed decision.
