What Are the Key Indicators to Watch for in Commodities Trading?
Any commodity trader who has been around for a long time will tell you that understanding economic indicators is key. They are used to track price movements and predict future market conditions. For example, the RSI indicator shows traders when an asset is overbought or oversold. It works on a scale from 0 to 100 and a reading above 70 is considered overbought. Contact Immediate Connect Trading to get more advanced tips for trading.
Economic Indicators
Many traders follow dozens of economic indicators, though the ones they choose to focus on may vary depending on their trading type. For instance, equity traders may pay close attention to GDP data while currency traders might not even glance at it.
Real GDP gives traders information about the overall size of a country’s economy and how rapidly it’s growing. A higher number can suggest that people have more money to spend and might therefore require more commodities, such as iron and steel.
Nonfarm payrolls and unemployment data are considered key economic indicators because they can affect market sentiment and lead to predictions about future performance. They can also help a trader understand where we are in an economic cycle.
Nonfarm Payrolls
Traders can use the nonfarm payrolls to see how well the US economy is doing. The data represents the number of paid employees in the country, excluding those in farm, government, and private household positions as well as workers at nonprofit organisations. The number is released on the first Friday of every month and is an important part of the Federal Reserve’s mandate to ensure full employment.
A positive release is usually supportive (bullish) for the USD, whereas a negative release can be seen as bearish. This is because a low unemployment rate typically leads to higher wage growth and tightening of the labour market, which in turn can lead to interest-rate hikes by the Fed.
Purchasing Managers Index
One of the most important things that commodity traders must keep in mind is the fact that almost all major commodities have established seasonal price patterns. The prices of heating oil and natural gas, for example, generally rise into winter and decline into summer each year. These price trends may be disrupted by specific economic conditions, but they tend to hold year in and year out.
The PMI is based on surveys of product managers within the manufacturing sector. It measures current and future business conditions, including new orders, supplier deliveries, inventory levels, employment, prices, and lead times. The information is compiled and reported every month. It is published by a variety of organizations, depending on the country.
GDP
Traders are interested in GDP because it measures the monetary value of all goods and services produced in a country over a certain period. The indicator reflects the work of government and private entities and excludes illegal activities.
It does not consider quality improvements or new products, making it difficult to accurately compare economic growth across countries. GDP can also be contrasted with gross national income (GNI), which considers the distribution of economic activity.
A positive change in GDP indicates that a country’s economy is growing, which will encourage businesses to expand and hire more workers. A negative change in GDP, on the other hand, can lead to a contraction of the economy, and traders will exit investments in currencies from such countries.
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