Forex Trading: Economic Indicators for Switzerland
Forex trading resources help investors predict the future trends of a national currency. Here is a list of some of the Swiss economic indicators that should help the savvy investor in forex trading successfully turn a profit.
Swiss trade balance
Switzerland has a small population and limited resources. Therefore, foreign trade is very important for the country’s economy. Trade statistics, such as the Trade Balance report published monthly by the Swiss National Bank, can have a significant impact on financial markets and currency trading.
Exports include everything from chocolate and watches to mechanical engineering and chemicals. Demand for these products from major trading partners such as Italy, France, Germany and the United States is usually high.
A positive trade balance, which means a trade surplus, indicates higher foreign consumption of Swiss products. Since these goods are usually paid for in Swiss currency, Forex trading platforms will often see increased demand for francs and also an increase in the value of the franc. A negative trade balance will have the opposite effect, reducing the demand for and value of the franc.
Gross Domestic Product (GDP) of Switzerland
Like all countries, Switzerland’s GDP is the value of all final goods and services that are produced within the nation’s borders during a specified period of time. The formula to calculate GDP is as follows:
GDP = C + I + G + (EX – IM)
C = private consumption
I = private investment
G = government spending
EX = exports of goods and services
IM = imports of goods and services
Many forex brokers and traders use GDP to measure the overall health of an economy. High growth rates indicate a boom, while low or negative growth indicates a recession.
The Swiss GDP report, published quarterly by the Swiss Federal Statistical Office, tends to have a powerful effect on currency trading. GDP growth can lead to inflation, and the Swiss Central Bank can raise interest rates in response. During low or negative GDP reports, the Swiss Central Bank may lower rates in an effort to boost the economy. Such rate changes can potentially affect the price and demand for francs on forex trading platforms.
Swiss Consumer Price Index (CPI)
Inflation reflects the decline in purchasing power of a currency: each unit of currency buys fewer goods and services. The CPI is calculated by determining the change in the price of a particular basket of consumer goods and services. The goods and services in the basket represent the purchases that the average household normally makes, and the figure is used to measure monthly and yearly changes in the cost of living.
The Swiss Federal Statistical Office publishes a monthly report on the country’s CPI. In an effort to control inflation, the Swiss National Bank may increase interest rates in response to an increase in the CPI. These higher interest rates would have a direct effect on currency trading because higher interest rates make the franc more attractive to foreign investors. Increased demand for the franc puts upward pressure on its value. The opposite is true in the case of a lower CPI.
Swiss National Bank 3-month Libor rate target
The main policy instrument of the Swiss National Bank (SNB) is its three-month Libor Rate target. In an effort to control inflation, the SNB raises rates; lowering rates is an attempt to encourage economic growth. Rate changes will impact mortgages, bank yields, bond rates, and consumer lending costs and yields. Due to these effects, rate changes will also have a major influence on the economy and financial markets, such as currency trading.
Switzerland’s financial sector is a large part of the country’s economy, so changes in the Libor rate affect the profitability of that sector. When Libor rates increase, the demand for francs also increases. The Libor rate decreases less the demand.
forex trading practice
When you start to learn the basics of forex trading, first practice on a free forex demo account, where you can learn the ropes without risking any money. Once you learn how to read forex news, open a live account to start trading and earn a profit.
