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In his best-selling book, Trade Your Way To Financial Freedom, Van Tharp argues that the price of a financial asset at any given time is based on the shifting market perception of the ever-emerging fundamentals.  With this thought it mind, it is easy to understand why it can be useful to understand and track economic data releases as a trader.

Each month, every country in the developed world releases a string of economic data, which gives traders and economists a better understanding of the underlying fundamental strength or weakness of a country.  Financial markets, of course, respond wildly to these data releases.

Bloomberg always polls a panel of economists each month on every piece of economic data that is set for release in order to find what the market is expecting.  These expected figures are then made public, and this figure is where the market expects the data release to be.  If the actual release varies significantly from what the market was expecting, then there is typically a large amount of currency volatility in fx trading in the direct aftermath of the data release as the market prices in the new figure.

In the rest of this article, we are going to list the major economic releases each month and offer a brief description.

Non-Farm Payroll

This is the most important data release of the each month for the U.S. dollar.  NFP is always released at 8:30 am est on the first Friday of each month.  NFP is considered a leading indicator of employment, which in turn is a leading indicator of overall economic health in the U.S.  Currently, as the U.S. economy attempts to gain solid footing after the financial debacle of the last few years, NFP holds extreme importance since employment is a major problem right now.

Retail Sales

The U.S. economy is based on consumer spending, and the Retail Sales figure is a leading indicator of overall consumer behavior.  If Retail Sales comes out better than expected, then the United States dollar typically rallies, as this is a sign of economic strength.  However, if Retail Sales comes out worse than expected, the dollar tends to sell-off as investors remain skittish of U.S. investments.

Inflation

Inflation is reported each month through several reports including Consumer Price Index, Producer Price Index, and Home Price Index.  Each of these reports offers inflation readings in different sectors of the economy, but CPI is oftentimes considered the most important.  When inflation beats expectations, a currency tends to rise as inflation fears lead to interest rate hikes.

Central Bank Speeches

Each month, Federal Reserve Chairman Ben Bernanke has several scheduled speeches that he gives about the economy and monetary policy.  These speeches are typically followed by Q&A sessions with the press, and since these sessions are unscripted, they can lead to surprising comments, which in turn lead to strong currency volatility as the market responds to unexpected news.

FOMC Notes

Each month, the Federal Reserve releases the Federal Open Market Committee notes.  These are notes that were taken during the Fed’s last interest rate meeting, and the notes offer further insight into the Fed’s decision-making process, and they can give the market clues about future monetary policy decisions.  The FOMC  notes tend to cause strong volatility in the market during times when there is general uncertainty concerning the Fed’s immediate decisions.

In normal economic times, interest rate announcements are very volatile news announcements, but over the last few years there is basically no movement around those releases in the United States since everyone knows the Fed is now raising interest rates until well into 2012.