Leading indicators

Leading indicators are statistical indicators that are used by forex traders to predict and anticipate upcoming changes in a forex market trend. Since leading indicators change before forex market does, traders consider them important as guidelines for investing wisely and for taking advantage of currecy pair price events before they occur.

In some cases, leading indicators are useful more as a guideline for potential change in a market than as a guaranteed change. For example, information contained in job reports, building permit requests, and Purchasing Manager Index (PMIs) can anticipate upcoming changes in the level of production and sales of corresponding goods and services. However, this type of leading indicators should be used as a guideline for investments, rather than to predict trend changes in the future.

In other cases, leading indicators can actually change the behavior of a market. Some leading indicators, such as initial jobless claims, money supply and profit of the manufacturing work week, are closely monitored by the Federal Reserve to decide whether or not to change interest rates and, more generally, the monetary policy stance. Therefore, traders closely observe the trend of leading indicators, and if enough of them suggest that the Federal Reserve is preparing an interest rate move, traders can undertake appropriate trading strategies. In all the main countries, there is also a super index that groups the main leading indicators (Leading Economic Index), which is usually communicated on a monthly basis.