Before starting to trade, it is very important to decide whether you want to be a short-time (intraday) trader, or you would prefer a longer-term approach, which is usually called swing trading. Swing traders tend to hold their positions for a couple of days or weeks.
Why is this important? Firstly, it will define your trading strategy and also your risk management, but secondly, there are other things to watch when you trade intraday and when you trade on a longer time frame.
So, if you are a short-time trader, the main fundamental tool to watch will be the economic calendar.
Economic calendar – what to watch?
There are several releases each month that tend to move the financial markets, in our case, the EURUSD pair. Let's talk about them.
Non-farm payrolls (NFP)
The most important release in the calendar is the US labor market data, typically released on the first Friday of each month. Traders pay attention especially to the number of new jobs created in the previous month, known as the non-farm payrolls (NFP). Should the number be higher than estimates, the greenback usually strengthens, and if the US economy creates fewer jobs than expected, the US dollar tends to decline.
Other important indicators (wage growth, unemployment rate, etc.)
But it's not as simple as that. Along with the NFP number, there are many other releases – such as wage growth, the unemployment rate, the underemployment rate, working hours, etc. Over the previous years, the wage growth number has grown in importance as the US economy is at its full employment, but wages have been lagging, which might refrain inflation from rising steadily. Thus, we could say that the wage growth figure has become more important lately. You should look for these releases in the calendar, check some of the previous numbers to see how the markets reacted after them.
ISM survey
Another important indicator in the calendar is the ISM survey from the manufacturing and the non-manufacturing sector (services). In the US, the services sector constitutes a bigger portion of the US GDP; therefore, the non-manufacturing sector is more important. These numbers are typically released during the first days of each month, and volatility usually picks up afterward. If the number is above 50.0, it indicates an expansion in the sector. On the other hand, if the number drops below 50.0, it implies a contraction in the sector, which will usually lead to a recession in the economy if the sector remains below 50.0 for several months.
Inflation numbers
Inflation numbers are another major release. The Fed wants to see inflation above 2%, and there are several inflation indices to watch, mainly the CPI, PPI, and PCE indices. When the inflation release comes out above the 2% threshold, the USD might strengthen as it could lead to rate hikes by the Fed. Alternatively, if inflation declines below 2%, the back could weaken as it might lead to rate cuts by the Fed. Once again, you can look up the recent CPI (or other) releases in the calendar and see how traders reacted to them.
GDP
GDP is another significant number watched by market participants. GDP is a delayed indicator, as it only calculates all the goods and services produced by the country over the last quarter. Thus, it's not forward-looking as the labor market, ISM surveys, or others. GDP is usually released on Friday, and there are quarter-on-quarter and year-on-year numbers. However, as investors usually have a good feeling about how the economy behaved over the previous months, volatility after this release tends to be smaller.
What about data from the EU?
All the mentioned economic indicators were from the US. There are not many releases from the EU, which tend to move the markets, and investors usually ignore them. However, all the numbers coming out from Germany are important for long-term traders (such as GDP release, ZEW and IFO surveys, inflation, labor market, etc.). Moreover, the PMIs from the individual economies are also important, especially when judging their long-term trends.
And last but not least - central banks
Last but not least, there are central banks. Both have a major influence on the financial markets and especially on the EURUSD pair. Both of them are currently (March 2020) in an easing mode – cutting rates and printing money.
We could say that the reaction of the EURUSD pair is the biggest after central banks' decisions, especially when they do/announce something unexpected. The ECB usually decides about monetary policy on Thursdays, while the Fed does it on Wednesdays. Both central banks meet up eight times a year.
Central banks bring us to the next part of this article – swing traders. Until now, we talked about the short-term volatility, usually after data releases from the economic calendar. Short-term traders can capitalize on it, but long-term traders try to ignore these numbers as they focus on the big picture and underlying trends.