Page 76 - NEW FOREX FULL COURSE

FOREX TRADING COURSE FOR BEGINNERS

3. Federal Funds Rate

Another US-based indicator, this one is released by the Federal Open Markets Committee
(FOMC), a committee in the Federal Reserve System. Its responsibilities include making key
decisions regarding the growth of US money supply as well as interest rates.
The committee meets eight times a year, as part of its schedule to determine the US monetary
policy. The outcomes of these meetings can directly impact the forex market. Statements that
are released after each meeting serve as a guide for the Federal Reserve regarding the future
course of its monetary policy.

If the FED changes the Federal Funds Rate or the perception regarding its direction of monetary
policy, it affects the US dollar. And, since the USD is the reserve currency of the world, this has a
cascading effect on other currencies.

4. Consumer Price Index

Also known as CPI, this is a measure of the goods and services and is index-linked to a base
starting point. It gives us an idea about how quickly prices are rising or falling. This information is
important, since price stability is part of the US Fed’s dual mandate.

Since inflation is directly related to monetary policy, the CPI report can have a huge impact on
the forex markets. Again, it is the deviation from the predicted results that usually has the
greatest impact.
For instance, if the value of CPI is much higher than expected, it signals that going forward,
monetary policy will be tightened. All other things being equal, this can be bullish for the US
dollar.

5. Retail Sales Report

The Advance Monthly Sales for Retail Trade, known simply as Retail Sales, is two weeks into each
month by the US Census Bureau (a division of the US Department of Commerce) at 08:30 ET. This
report gives an estimate of the nominal dollar value of retail sales, along with the percentage
change in the figure from the previous month.

Most forex traders follow the percentage change data more than the other contents of the
report. If there is a large divergence between expectations and the reported figure, it can have a
significant impact on market prices.

Another reason why this report is so popular is due to the Personal Consumption Expenditures
(PCE). PCE is considered a major contributor to the growth of the American economy.

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