FUNDAMENTAL INDICATORS Gross Domestic Product (GDP) GDP is perhaps the most consistently followed and studied economic

c indicator for foreign exchange traders. This is because it is virtually an all encompassing measure of economic growth and output. Released quarterly and quoted on an annualized basis, the GDP is the total market value of all goods and services produced by the economy within a given period of time. Employment situation The Employment Situation Report is put out monthly by the Bureau of Labor Statistics, and includes two vitally important surveys thatsummarize the nation s laborsituation: the Household Survey, and the Establishment Survey Most notable of these fi gures is the Non Farm Payrolls (NFP) data (within the Establishment Survey), whichhas been one of the most anticipated and traded benchmark statisticsby foreign exchange traders in recent years. Retail sales Another very important economic indicator, themonthly Retail sales report releases data for the previous monthon the value of merchandise sold to end consumers by a representativesampling of retailers. Retail sales data includes the totalretail sales in dollars, with the percentage change from the prior month. It also includes the total retail sales excluding automobilesales ( ex autos ). Consumer Price Index (CPI) Because the monthly CPI is abenchmark infl ation indicator, it is one of the most anticipatedreleases by the foreign exchangetrading community. The CPItakes a basket of common, daily - use consumer products andcompares price levels from previous years. Two metrics comprisethe CPI statistics Core CPI (minus food and energy)and chain - weighted CPI. Producer Price Index (PPI) From a foreign exchange tradingperspective, the primary role of the monthly PPI, whichis released before the CPI every month, is essentially as a predictorof the all - important CPI infl ation - indicator. Whereas the CPI is an index of consumer prices, the PPI is an index ofproducer, or wholesale, prices. Since consumer prices and producerprices are closely interrelated, the PPI and CPI are generallyclose refl ections of each other. Because infl ation and interest rates are so important to the value of theU.S. dollar and the CPI is perhaps the most accurate indicator

of infl ation available the PPI is also an important economicindicator because it is, in turn, an accurate predictor ofthe CPI. Durable goods The Durable Goods Report is a monthlyreport that provides data on new orders placed with domesticmanufacturers for delivery of durable goods. These are defi nedas factory hard goods with a useful life of at least three years,and generally include higher - pricedproductssuchasautomobiles,appliances, industrial machinery, computers, and the like.The Durable Goods Report is one of the economic indicatorsthat paint a picture of the U.S. manufacturing sector, which isa vital aspect of the economy. Therefore, the report also refl ects general business demand and confi dence within the entireeconomy. For these reasons, this indicator can certainly movethe currency markets, especially if the numbers deviate signifi -cantly from the expected consensus numbers (more on consensuswill be discussed later in this chapter). Industrial production The Industrial Production Report isa monthly measure of the percentage change in manufacturingand factory production. Like the Durable Goods Report,the Industrial Production Report is important because it provides information on the vital manufacturing sector. Purchasing Managers Index (PMI) The Institute for SupplyManagement (ISM), a non profi t group, maintains the PMI andissues monthly releases based upon this index. The PMI is acomposite index of the manufacturing situation that includes:new orders, production level, employment, supplier deliverytimes, and inventories. Data for this index, which is essentiallya sentiment indicator for the national manufacturing sector,are obtained through surveys of purchasing managers. Employment Cost Index (ECI) The ECI is a quarterly reportreleased by the Bureau of Labor Statistics (BLS). This report measureschanges in payroll compensation costs for nonfarm industries,as well as state and local governments (but excludes federalgovernment). Housing starts/existing home sales Together, Housing Starts(New Residential Construction Report) and the ExistingHome Sales Report provide a solid picture of the U.S. housingsituation. Housing starts is issued monthly by the U.S.Census Bureau.

Trade balance The monthly Trade Balance Report is important to foreign exchange traders because it has become an indicator of U.S. economic health, as well as U.S. economic standing in relation to foreign economies. The nominal trade deficit data, which represents the difference in monetary value between exports and imports, is probably the most watch ed and anticipated aspect of the Trade Balance Report. Personal income and outlays The Personal Income and Outlays Report is a monthly release by the Bureau of Economic Analysis (BEA). Personal income is the amount of income received by individuals from all sources, especially wages and salaries. Federal Open Market Committee (FOMC) rate decisions As is evident from earlier in this chapter, interest rates are a major determinant of currency value. An FOMC rate decisionis not as much of an economic data indicator as the others described in this section. Rather, it is a market - movingannouncement resulting from an all - important meeting oninterest rates, infl ation, and the economy by the top Fed boardmembers and bank presidents in the country. The FOMC, which currently has eight regularly scheduled meetings peryear, is a major element of the Federal Reserve System, andit serves as the primary director of U.S. monetary policy. Centralbanks play different roles within their respectiveeconomies,determined both by conception and tradition. The European Central Bank has a specifi c mandate to protectagainst infl ation economic growth is secondary.The American Federal Reserve s role is to promote economicgrowth and jobs, as well as to watch against infl ation. The value of a nation s currency is also directlyaffected by the comparative strength and weakness ofa country s economy in relation to those of its trading partners. The stronger economy, that with the higher GDPgrowth, lower infl ation, greater productivity, political stabilityand a host of other factors will, over time, have thestronger currency. It is these fundamental factors, in conjunction with central bank interest rate cycles, which producethe long - lasting price trends typical of the currencymarkets. Exchange rates tend to focus on one aspect of a currencyits use as a medium of exchange. The U.S.economy is currently 22% of world GDP; it was once 50%.Modern industrial capitalism is spreading to new and everlargersections of the world. Since World War II the U.S. percentage of the world economy has steadily diminished

as other national economies have grown at faster rates.Over time that reduction has decreased the demand forthe dollar as an agent of exchange. But currencies alsoact as a long term store of value. Any foreign investor ina country is also an investor in that country s currency. GDP is used for assessing economicgrowth, CPI for providing indications of infl ation, and the Non -Farm Payrolls report for evaluating the employment situation.