There are many techniques of direct trading in Forex, but in addition to playing techniques on the market, there are also external factors affecting it. And timely, correct analysis of these factors is the key to successful trading in the market.
Consumer price index – one of the important economic indicators, the analysis of which may signal of impending inflation or vice versa economic growth and, as a consequence, the need to sell or buy the currency of the country. This index includes information on the average price change and goods in the main sectors (food, housing, transport, energy, entertainment, clothing) – 44% and services (56%). The index is published monthly and is analyzed in parallel with the industrial price index.
The question is how to interpret this indicator? On the one hand, an increase in the index means an increase in the level of inflation, that is, the depreciation of the national currency. And it would seem necessary to withdraw funds invested in the country’s currency. However, this may mean an increase in the standard of living. That is why it is important to investigate this parameter in the complex, delving into the reasons for its growth. And also pay attention to the trend dynamics in the short and long term.
If there is a demand for goods in the country, then with an increase in well-being, demand will increase, pushing prices up. Therefore, if the consumer price index rises simultaneously with the fall in the unemployment index and the growth in consumption, this indicates a growth in the country’s economy, and hence the possibility of investing in the national currency. After all, moderate inflation against the background of production growth strengthens the national currency.
If the rise in the consumer price index is growing independently, then it makes sense to think about it. On the one hand, the rise in prices in the country will force the Central Bank to raise the discount rate, making the national currency more expensive. However, this is applicable for the short term. After all, if the rise in prices continues, the purchasing power will fall, and the economy will collapse behind it. Therefore, in the long-term trend of growth of this index, it makes sense to think about selling the national currency and pay attention to the currency of another country.
Since price and economic fluctuations are undulating, the study of this indicator will help to predict which economy and at what point it is best to invest in.
We think we were able to slightly reveal the need to analyze this tool, and therefore made a small contribution to the further development of your trading success. We will try in our blog to develop more and more relevant topics of currency trading so that you can further increase your earnings in Forex.