Because it affects both currency strength and weakness, GDP, known as Gross Domestic Products, is an essential indicator of what forex traders should always keep an eye on. It is one of the best ways to measure a nation’s economy strength and growth. GDP is the total value of everything produced by all the people and companies in the country. Whether they are citizens or foreign-owned companies, if they are located within the country’s boundaries, the government counts their production as GDP. Normally, currency values rise when GDP improves and the value drops when GDP declines.
The unemployment rate is another vital sign to locate the current price value of the currency along with GDP. Unemployment rate is the number of unemployed people as a percentage of the labor force, where the latter consists of the unemployed plus those in paid or self-employment. Unemployed people are those who report that they are without work, that they are available for work and that they have taken active steps to find work in the last four weeks. When unemployment rate is high, some people become discouraged and stop looking for work; they are then excluded from the labor force. This implies that the unemployment rate may fall, or stop rising, even though there has been no underlying improvement in the labor market. The higher the unemployment rate, the weaker the currency, and the lower the unemployment rate, the stronger the currency
Merchandise Trade Balance Though, it is not as significant as GDP or Unemployment rate, Trade Index is still preferred by many investors as traditional trend indicator. Merchandise Trade Balance measures the difference between imports and exports of goods. The level of the international trade balance, as well as changes in exports and imports, indicate trends in foreign trade and can offer a guide to an economy’s competitiveness
In general, when the trade balance is surplus, the currency is strong, and when the trade balance is deficit, the currency is weak.