DAY 4: Fundamentals Basics – Relationship between economic indicators and the market

On DAY 3, we learned how to read the psychology of market participants through candlesticks and price action. Technical analysis is a powerful tool for trading, but fundamental factors such as economic indicators and news can unexpectedly move the market significantly.

Today,Fundamentals Basicsas a guide, we will explain representative economic indicators and how to read them, their impact on the market, and the importance of risk management.

1. What is Fundamental Analysis?

• Definition: Analyzing the basic factors of the economy itself, such as the economic conditions of a country or region, monetary policy, interest rate trends, and political situation,to forecast future currency and stock values.
• Difference from Technical Analysis:

Even if you trade only technically, there will be moments when the market suddenly moves due to indicators’ releases. Understanding “why it moves that way” is the role of fundamental analysis.

2. Representative Economic Indicators

(1) Employment Statistics (US)

• Attention:★★★★★ (one of the most important events in FX)
• Announcement Timing: 21:30 on the first Friday of each month, Japan time
• Content:
  • Average Hourly Earnings
    
    
• Market Impact:
  • Immediately after release, USD-cross currency pairs tend to swing up or down sharply.
    
    

(2) FOMC (Federal Open Market Committee, US)

• Attention:★★★★★
• Frequency: Generally eight meetings per year (about every six weeks)
• Content: A meeting that decides US monetary policy. Decisions on policy rates and outlook are discussed.
  
  
• Market Impact:
  • Interest rate policydirectly affects currency strength, so outcomes can cause large moves.
  • Not only USD/JPY but cross yen and other dollar-cross pairs are affected.
    
    

(3) ECB Policy Rate Announcement (Europe)

• Attention:★★★★☆
• Content: The European Central Bank (ECB) decides policy rates.
  
  
• Market Impact:
  • Essential to check for gauging the euro area's economic situation.
    
    

(4) CPI (Consumer Price Index)

• Attention:★★★★☆
• Content: A representative indicator showing inflation. In the US it’s “U.S. CPI”; in Europe it’s “Euro area HICP,” etc., with different country names.
  
  
• Market Impact:
  • If inflation rises, there is a tendency toward monetary tightening (rate hikes), which can support currency strength.
  • Numbers that significantly exceed or miss market expectations can cause instantaneous market fluctuations.
    
    

(5) GDP (Gross Domestic Product)

• Attention:★★★☆☆
• Content: The total value of economic activity in a country or region over a specific period.
  
  
• Market Impact:
  • Not as impactful as employment statistics, but still an important indicator.
  • If the forecast vs actual diverges significantly, the market may react.

In addition to these, there are many others such asRetail Sales,Producer Price Index (PPI), and Business Sentiment Indices (ISM, PMI, etc.), but for beginners it’s fine to focus on the indicators that have especially high importance.

3. Market Characteristics at Indicator Releases

1. Immediate large moves

   • It’s not uncommon for moves of tens to hundreds of pips within just a few seconds.
   • Be aware of widened spreads and slippage (the difference between order price and execution price).
     
     

2. Difference between expectations and actual results is key

   • The market tends to pre-price in a consensus expectation.
   • If the result is better than expected, buying may surge; if worse, selling may dominate… but a “good indicator = rise” is not always guaranteed, which is tricky.
     
     

3. Movements “right after” indicators are not always the main move

   • Sometimes after an initial surge, price reverses sharply, forming a head-and-shoulders like move.
   • In employment stats, initial volatile moves can last minutes to about 30 minutes after release, so beginners should stay cautious.
     
     

4. Risk Management Comes First

• Don’t force yourself to trade indicators
  Big moves tempt traders to chase opportunities, but they come with big risks.

  • Especially for beginners, close positions or place tight stops before indicator releases.
  • “Indicator-time scalping” exists, but requires substantial experience and risk tolerance.
    
    

• Be sure to set stop losses and orders

  • When placing orders, set stop-losses (or use stop orders) to guard against unexpected moves.
  • Before and after economic indicators, spreads tend to widen—consider budgeting for wider stops than usual.
    
    

• With automated trading (EA), beware the logic

  • Some EAs have auto-stop features before indicators or detect spread widening to suppress trading.
  • Check logic and settings in advance and consider manual OFF if necessary.
    
    

5. How to Utilize Fundamentals?

1. Grasp the big picture

   • “Inflation accelerates → rate hikes may come sooner.”
     Use these as materials for long-term trends.
     
     

2. Trade indicators or avoid them?

   • However, for beginners it's safer not to force trades—observe market moves or practice with small lots.
     
     

3. Combining discretionary and automated trading

   • Automated: steady EA operation most of the time, pause during indicators (hybrid approach)
     Balancing like this can reduce stress and help limit losses.

6. Summary & Next Preview

Summary

1. Developing a long-term macro view and solid fundamental knowledge gives you an advantage.
   
   
   

Next time (DAY 5) Theme: Risk Management – Capital Management and Position Sizing

• This time, we discussed risk management tied to large moves in fundamentals, but next time we will focus onrisk and capital management.
  
  
• Learn how professionals avoid big losses with risk-reward balance and stable trading.
  
  
  

If you’re interested in automated trading, please also check the link below.
https://www.gogojungle.co.jp/users/147322/products

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Thank you.