Advantages and Disadvantages of Retail Sales Reports for Forex

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The consumer is a major engine for economic growth for any country or region. This is why forex traders need keep an eye on signs of a strengthening or weakening consumer. One sign of a stronger consumer is the ability and willingness to spend money on goods. Therefore, retail sales reports are key economic indicators for those looking to forecast future price movements in the currency markets.

What the Retail Sales Report Measures

The retail sales report measures the value of merchandise purchased within the retail sector of a country during a specified period of time. This is done by gathering a sampling of companies involved in the selling of consumer products. The data sample includes businesses that operate on a fixed point-of-sale model as well as non-store retailers. Additionally, the sample data includes companies of all sizes, ranging from large national retail chains, such as Wal-Mart to small independent shops.

Advantages of the Retail Sales Report

Generally retail sales reports are considered timely since they are usually released shortly after the month that they cover. Also, traders can usually download a complete breakdown of component sectors in order to interpret the data in more minute detail. In order to increase a report’s relevance and usefulness, economists and analysts will exclude volatile components in order to reveal underlying demand patterns that could be more relevant to making trading decisions.

Disadvantages of the Retail Sales Reports

One of the commonly noted weaknesses of the retail sales reports as an economic indicator is that the sample size is small relative to the total number of retailers in an economy. Also, the data stream from the retail sales reports can be volatile from month to month, making identifying oncoming trends challenging. Additionally, the raw data does not take inflation into account, despite its use by traders as a possible measure of inflationary pressures.

Although the retail sales reports can reveal significant information regarding a country’s current economic health, it is still up to the individual forex trader to put the data into context. This will include taking into account other economic factors, such as employment data, monetary policy decisions and market sentiment. Forex traders who can do this successfully will stand the best chance of profiting from the currency markets.

Writer Bio

LeBach PhamLe Bach Pham has been writing professionally after receiving his Bachelor’s of Art in English Literature from the University of California, San Diego in 2002. He now specializes in writing about legal, business and financial topics. Pham also earned a Paralegal Certificate from the University of San Diego and has experience working in the legal field. He also has experience in writing business plans for clients from various fields, including banking, finance, retail, education, beauty and various other sectors.

Sources:

http://fxtrade.oanda.com/learn/intro-to-currency-trading/fundamental-analysis/monetary-policy

http://www.investopedia.com/walkthrough/forex/intermediate/level5/retail-sales.aspx

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