Here is a quick overview of forex indicators explained. A forex indicator is one that provides guidance on future currency movements. There are different types of indicators, as well. For instance, there are technical indicators which analyze chart patterns and there are also economic indicators, which look at various macro economic data points. Among the more popular technical indicators are the Relative Strength Index (RSI), Moving Average Convergence Divergence (MACD), Stochastic Oscillator, and other chart formations. With regards to economic indicators, unemployment, GDP, housing, retail sales, industrial production, and the CPI are among the most common metrics monitored and analyzed.
Let us take a deeper look at some of the technical indicators first. The Relative Strength Index is a normalized ratio of positive moves versus negative ones. This normalization results in an index range of zero to one hundred. If this RSI shows a value in excess of seventy then conditions are considered to be overbought relative to expectations. Similarly, if the ratio is below thirty then conditions would be considered oversold.
The MACD or the moving average convergence divergence is a resulting graph that shows the difference between two different moving average lines. There is a second trigger line which is generated by calculating the exponential moving average of this difference. Upon the crossing of these two lines, an indication is given that a change in trend is more than likely.
The stochastic oscillator is another graphic measurement with values ranging between zero and one hundred percent. Stochastic calculations produce results based on price observations. In an upward trend, closing prices are concentrated on the higher part of the period’s range and conversely in a down trend, the closing prices are near the extreme low of the period range. The results are two lines which indicate any regions that have extreme conditions either from a buyer’s or seller’s perspective. A divergence between these lines and the actual price movement indicate a powerful signal.
For one to have forex indicators explained to them, economic indicators have to be a part of the study. The primary indicator of the strength of any economy is the gross domestic product, or the sum total of all the goods and services produced by the nation in question. The measurement is conducted on a monthly, quarterly, and yearly basis at market value. However, GDP cannot be used as an indicator in isolation.
Industrial production is an indicator of manufacturing growth and is particularly relevant for strong manufacturing based economies. The actual production amount is an important gauge as is the capacity utilization. For example, if there is a significant amount of unused capacity, then this could be an indication of a potential slowing economy.
For example, other indicators should be considered when determining the strength of an economy. Among these are unemployment and housing statistics. When there is a large population that is at unrest or unproductive, it can result in greater political and economic instability. An engaged and productive population growth is ideal for maintaining a strong currency.
Another important indicator is retail sales. The retail sales data is a composite of the total receipts of broad distribution retail stores. This provides an indication of the consumer sentiment within the country and, hence, a gauge on their comfort or expectancy for future economic stability and growth. This is generally a good proxy for investor and consumer sentiment.
As forex indicators go, these economic indicators need to based on apples to apples comparison, therefore, one needs to account for the cost of inflation. The CPI, or consumer price index, is a very good indicator of inflation. This index measures the change in prices on consumer goods and can help determine whether the company is making or losing money on their goods and services. The exports of a given country are very important because they reflect the currencies’ strength or weakness. Thus, we have forex indicators explained.
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