Early indicators on forex
One of the most important early indicators on Forex from the USA is the consumer confidence index. An important part of the fundamental analysis for forex traders specializing in the dollar in their currency pairs. But also for traders of raw materials and indices an indispensable supplier of arguments for trade. What this index says exactly and when it is announced now follows.
The CCI, as this indicator is also abbreviated, provides information on consumer confidence in the United States. Its value provides information about the tendency of households in the US to consume. The measurement is taken over by an independent research institute in New York. In the United States, there are two other indices with similar statements. These are the consumer sentiment index and the consumer climate index of Thomson Reuters.
Figure: CCI and CSI of the last 12 months compared
Data collection at the CCI
In order to calculate this early indicator of the economic development of the world’s largest economy, 5000 representative selected consumers are surveyed. It is all about the purchase of durable goods. This shows consumer confidence in the performance of the US economy. As consumer spending is more than 60% of US economic output, this indicator is of great importance. This data is collected and published monthly by the Consumer confidence survey.
Topics of the survey
The subject of the survey for the Conference Board are:
The assessment of the current economic development in the region of the respondent
The assessment of the economic development for six months.
The current availability of free employment in the region of the respondent.
The possible availability of jobs in six months.
The expected family income for the next six months.
Participants in the survey estimate the development with positive, negative or neutral. From all the answers, the Conference Board calculates two indexes, which together result in the overall index. The two indices are the present situation index as an assessment of the current situation and the expectations index, for assessing future expectations. The statements on current behavior have a share of up to 40 percent in the overall index, the other 60% for future behavior. Preliminary results from the consumer confidence survey are always published on the last Tuesday of the month at 16:00 a.m. CET.
Significance of the CCI as an early indicator on forex
A particular strength of this indicator is the combination of the statement from the current state and the future development of the coming months. The monthly publication allows the trader to recognize trends well. However, further indicators are also to be drawn up here for decisions. One reason for this is that a consumer is not an economic expert and makes his decision more out of the gut. Also, planning an acquisition is not yet a purchase. In the longer-lasting positive stages of economic development, demand for consumer goods will also fade, as consumers have satisfied their needs. Important for the trader, however, the financial markets react very sensitively to this indicator and it can occur especially in deviations from the expectation to larger price reactions.
In any case, the foreign exchange trader should make the effort to draw on comparable indicators from the other economies so that he can better estimate the possible price development of a currency pair. It is also important that this is a fundamental size and that its effect remains visible on the chart beyond the day. Trends that might last up to a few weeks may take their start or will find their end.Advertisement