Forex Trading Basic

Fundamental Analysis: GDP (Gross Domestic Product)

Forex Trading Trendline Analysis

Fundamental Analysis on GDP: Gross Domestic Product  measures the annual change in the inflation-adjust the value of all goods and services which are produced by the economy. It is one of the board measure of economic activity and the very first indicator of the economy’s health. Government institutions make major economic decisions based on it, central banks make their policies based on it, and the stock exchanges and business sectors depends a lot  on Gross Domestic Product to prepare the prediction of economic performance for production, investment and employment planning. It is a very obvious statistic to look up when judging the current status of a world economy.

Fundamental Analysis on GDP: Impact on Forex and Economy

A rising Gross Domestic Product generally speaks well for a currency and economy. If the production is high and translates it into good revenue as a result the currency grows stronger. Moreover, a falling Gross Domestic Product or stagnant Gross Domestic Product can’t only signal about the economy has grown weaker, it can also lead the central bank to lower interest rates to stimulise more borrowing and economic activity in order to improve the Gross Domestic Product. If the central bank lowers its interest rates out of concern of Gross Domestic Product, then the currency becomes low attractive for international investors to hold and thus the currency weakens.

Economic Calendar Events: Fundamental Analysis on GDP

  • Impact: Medium-High
  • Countries :Most
  • Frequency:Quarterly

This report describes the size of the economy in two ways: 1) current Gross Domestic Product tallies the value of all goods and services produced in a country using present prices, and 2) real Gross Domestic Product counts only the value of what was actually produced. Did Hewlett Packard gain $100 million in the last years from selling 10% more computers or did it gained from raising the prices by 10%? It is an important issue to know if the country grew up because of the number of products sold or whether it was a result of price that spikes or inflation. We want to see the real increases in economic output, which means a bigger supply of goods and services which are available to consumers. Higher real Gross Domestic Product improves the standard of living for its citizens, while Gross Domestic Product growth due to inflation dissolves the living standards. Most economic calenders reports that the Gross Domestic Product figures which is the final change in the inflation-adjusted all the value of all goods and services produced by the economy, expressed as percentage changes. One must keep in mind that a real 3% yearly growth rate is considered the pace in which the economy has to grow for people to feel them as if the economy is moving forward, and if it grows less than 3%, the economy is not growing very fast enough to absorb roughly 1% per year of new employers who entered the labor force and the result will be usually higher unemployment. Greater than 4% Gross Domestic Product growth risks the danger of overheating and bigger inflation and the possibility that the central bank may rise up interest rates to cool down economic activity a little.

For traders, the rule of thumb is given below:

Difference in Forecast and Actual % ChangesCurrency EffectReason
Higher than forecastStrengthens CurrencyEconomy is healthy (pro-currency) and central banker less inclined to lower interest rate.
Lower than forecast  Weakens CurrencyEconomy is not as healthy and central banker may be more inclined to lower the interest rate (anti-currency)

Because Gross Domestic Product is a straggle indicator that usually comes out quarterly, traders are often look into business related indicators as foreshadows of an improved Gross Domestic Product alongside unemployment figures.

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Please note that: gaining profit from fundamental analysis largely depends on your brokers MT4 platform functions. If your broker is vulnerable to high slippage problem during the time of news release, you are not going to get expected result from trading. So, while Choosing Forex broker, we would like to recommend you to start trading with a broker that has slippage guard. We recommend you to trade with HYCM Broker to get the best possible outcome of forex trading fundamental analysis. Read review of HYCM Broker to learn more on this

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Chapter 6

Forex Trading Fundamental Analysis

Lesson 1.Forex Trading Fundamental analysis
Lesson 2Forex Trading Fundamental analysis
Lesson 3Fundamental Analysis of Interest Rates
Lesson 4Fundamental Analysis of Inflation Rates
Lesson 5Fundamental Analysis on Balance of Trade
Lesson 6Fundamental Analysis on Government Factors
Lesson 7Fundamental Analysis: Employment / Unemployment
Lesson 8Fundamental Analysis on GDP
Lesson 9Fundamental Analysis on Geopolitical Risks

Go back to Main Page: Forex Trading for Beginners

About the author

Syed Nazim

Syed Nazim is the Marketing Manager of RedMaroon, a Digital Marketing Agency for Financial Institutions. He is also involved with Forexing24.com as a writer and financial Analyst. He is a brilliant marketing geek with vast experience in every sector of Digital Marketing. He likes sharing strategies, tactics and proven methods to help you build a business and live the life of your dreams.

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