International numbers

Not only is there a slew of U.S. data to remember, there are also crucial reports released in other countries that affect currency prices. Traders need to investigate which economic data is most critical in a certain country during a given period.

For example, in addition to housing prices and retail sales, manufacturing, industrial production and trade balance data are important in the U.K. and Japan because they tend to be more manufacturing and export-oriented countries, according to Dolan.

He also says understanding things such as employee compensation, which often differs from practices in the U.S., makes interpreting non-U.S. data more meaningful.

“In Japan, private consumption data is very important, like it is here,” he says. “But there, overtime earnings and seasonal bonus data are also extremely important. Bonuses comprise a significant amount of Japanese income, and if they are declining, you can bet private spending will fall.”

In Japan, numbers depend on where the main economic liabilities are, according to Beuzelin. Exports are very important there as well.

Lately, U.K. economic data has been weakening slightly: housing prices have moderated over the last few months, and some key reports, such as the September industrial production data, have come in weaker than expected.

The U.K. central bank’s rate-setting body, the Monetary Policy Committee, has been hiking rates in an attempt to curb the inflationary pressures stemming primarily from rampant consumer demand, particularly in the housing market, according to Beuzelin.

“If we see housing prices continuing to cool, that will weigh on the pound but be good for the dollar,” he says. Although some believe certain economic reports in general are untrustworthy, there are economic reports and data relationships that prove consistently reliable, Dolan says. For example, in Japan, machine orders are closely watched. If machine orders sink but tool orders rise, there will probably be more machine orders next month.

“You have to really know the data, know what to look for and what matters and why,” he says. “Investors have been pulling out of Japan — or the media has been saying that money is leaving Japan — because the economy isn’t growing. But [the machine orders and tool orders] data proves otherwise.”

All types of FX traders — not just fundamentally-oriented players — must inevitably keep abreast of economic conditions at home and abroad if they want to avoid being broadsided by the market.

“Investors should really be betting on consumer confidence,” Dolan says.

If consumer spending is not picking up consistently in Japan, it will undermine the yen and the dollar, Beuzelin says. It addresses the issue of whether, in the long run, Japan can sustain its growth and whether wages are growing too.

“Over time, the underlying economic performance of a country determines how well a currency will perform,” Beuzelin says.

“You cannot understate the important of economic indicators as a driver of FX market activity.”