The economic calendar is a tool that brings together in real time the main events that have an influence on financial market prices and is followed daily by most investors.
Stress management is one of the main issues that traders face every day. Traders have to deal with an impressive amount of information, while managing real financial risks. Optimizing time is therefore of the utmost importance. This is the reason why the economic calendar, a constantly updated information gathering and summarising tool, has gradually become indispensable to investors.
What is an economic calendar ? How do you read an economic calendar ? How do you use an economic calendar for trading ?
Here is a complete summary of the information you need to know about the economic calendar, in order to incorporate this fundamental tool into your trading routine.
The economic calendar is a diary that shows all the economic and political events likely to influence financial market prices. It concerns all types of assets and existing markets, including commodities, currencies, stocks, and indexes.
This calendar records the dates of all important events in the financial world (key economic statistics, central bank meetings, important political interventions...), so traders can anticipate them and adapt their investment strategies accordingly. The majority of investors follow the economic calendar on a daily basis, and consult it several times during the day, in order to determine the best trades to make on their favorite assets.
Most economic calendars present their data as horizontal lines (one line per event), sorted per economic zone. Each line shows the time of the event, the asset impacted, the announcement itself, the level of importance of the announcement, and the result. Generally, the result has three sections, including the level of the statistic before the event, the result expected by the experts, and the actual level confirmed following the event.
Some economic calendars provide other key information. For example, traders can find the results of shareholders' meetings, which are likely to affect stock prices, especially in the event of strategic changes in companies. Investors can also find information about the launch dates of new products. Each piece of data in the economic calendar is instantly available online, usually accompanied by its history, as well as expert analysis. These analyses help traders to better understand the overall market sentiment. The economic calendar represents a major time-saver for the investor, who can consult, at any time and on a single interface, a compilation of events likely to impact the values of the assets traded.
Significant events listed in the economic calendar impact the financial markets by increasing price volatility. These announcements are highly anticipated and usually initiate trading spikes in the financial markets, which then causes some price agitation. Thus, some traders use the calendar by systematically taking their profits before these events, or by simply refraining from placing orders during these key periods. This way, they limit the risks associated with this heightened volatility.
However, other investors, eager to maximize their capital gains, voluntarily take positions at the time of major announcements, hoping to follow a large-scale movement.
Generally speaking, economic calendar data provides an opportunity for fundamental market analysis. Indeed, an important economic announcement can be the sign of a valuation or a devaluation of the assets of the concerned market. A decrease in the unemployment rate, for example, is usually a sign of a price increase in the impacted market. It is also fundamental for the investor to keep in mind that prices will not necessarily move in the direction of the real economy, but in the direction of the traders' anticipation. Thus, when an important event in the economic calendar has been perfectly anticipated by investors, the impact on the markets is zero.
On the other hand, if there is a significant difference between the announcement and its anticipation, the impact can be significant. Therefore, if a decrease in the unemployment rate is not as large as expected, the market may ultimately be negatively impacted, despite positive consequences on the real economy. Finally, the statistics reported by the economic calendar can have an indirect impact on the financial markets.
Indeed, the consequences of events on the real economy may lead some institutions, notably the Central Banks, to adjust their monetary policies accordingly. For example, a drop in the unemployment rate in the European Union may lead the ECB to reduce its support for the economy of the zone, thus causing prices to fall.
The economic calendar is a useful tool for providing an overview of financial news. However, as its format is exhaustive and very reactive, the information offered is relatively shallow. In order to monitor the financial markets in a more in-depth way, traders should also keep up with the specialized press.
Moreover, the vast majority of investors do not content themselves with fundamental analysis, favored by the economic calendar, to open their trading positions. They also use chart analysis, technical indicators, and chartist figures. Finally, understanding the psychology of traders is just as fundamental to understanding price movements and anticipating them.
The economic calendar is a tool that offers access to all the vital information concerning the events impacting the financial markets. Easy to access and updated in real time, it is a major ally, but must be complemented with in-depth information sources and several analysis methods.