What are the best low impact economic indicators?

Economic indicators can be divided in to three categories: high impact, medium impact and low impact. They are distinguished by the expected degree to which they may affect currency prices on their release. Although this is a general categorisation, it is worth remembering that even a low impact economic indicator could become high impact if it is seen to have wider repercussions in the market. Likewise, a high impact economic indicator may have a substantial effect on the EUR/USD but be relatively muted for the USD/JPY.

Economic indicators vary not only in terms of their impact but essentially in the data that they are presenting. The most famous high impact economic indicator in the US is the monthly non-farm payroll figure. This has a wide enough impact to send almost every currency pair into chaos once each month. As a high impact indicator reactions to it are anticipated as it provides information regarding the economic health of the worlds largest economy. Although there is low impact data being released every day mot of this will only have a slight effect on the relevant currency and often they may even go unnoticed in terms of price movements.

Low impact economic indicators are very often seen as insignificant to the majority of currency speculators, especially as they are not directly relevant to all currency pairs. Although it used to be fairly high impact during the housing boom and prior to the financial crisis of 2009, one of the most useful of the low impact indicators in the house price index. Due to the fact that it is only really relevant to one specific country, and therefore one particular currency, it is a good indicator to assess the level of access to credit, consumer confidence and overall economic health of a nation. House prices have depreciated globally with the credit crisis and the difficulties to access credit, unemployment and general economic depression have lead to a slowdown in both house prices and house building. Interest rates however are central to both house buying and to currency speculation. Watching for signs of a renaissance in house purchasing would indicate an increase in access to credit and the potential for inflation to stimulate a rise in interest rates. A shrewd observer could then anticipate a future increase in currency value.

Another low impact economic indicator which could be considered the best in terms of a widespread ability to reflect levels of consumption are the credit spreads. These do not necessarily reflect the health of the overall economy but they are a good gauge on how much trust there is in the capital markets. This trust is essential to the liquidity of finance around the world and, as the credit crisis has shown, the illiquidity of credit markets can have economically catastrophic effects. Watching this as a low impact indicator will allow a general overview of the future economic situation. Fluctuations in these credit spreads occur as the result of major international credit fears such as the current financial crisis in Greece.

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