There are three primary drivers of price action in the market:

1) Behavior: fear and greed

2) Technical: price action. This is the study of trends, patterns, and support/resistance.

3) Economic Reports. Each week, we receive economic reports on everything that impacts the market from an economic standpoint.

The number one drivers are economic reports. If you’ve ever wondered why the market is up big one day or down the next and then nothing the day after, it’s typically due to an economic report that came out. This week, we received two economic reports: the durable goods orders and the final GDP report. Let’s take a look at how they impacted price action on both the /ES and EUR/USD pair.

Economic Reports: Tip to www.forexfactory.com for the definitions.

Durable Goods: Change in the total value of new purchase orders placed with manufacturers for durable goods, excluding transportation items. It’s a leading indicator of production. Rising purchase orders signal that manufacturers will increase activity as they work to fill the orders.

The durable goods order was the worst miss this economic report has had since 2008 and the market responded in kind with close to a 2% drop in the market. The EUR also fell against the dollar briefly as the EUR was at resistance.

The second report is the GDP, which is gross domestic product. There are three GDP reports, with the final being the least important of the series of GDP reports. The final GDP is: annualized change in the inflation-adjusted value of all goods and services produced by the economy.  While this is q/q data, it’s reported in an annualized format (quarterly change x4). The previous listed is the actual from the preliminary release, and therefore the history data will appear unconnected. There are three versions of GDP, each released a month apart: advance, preliminary, and final. The advance release is the earliest and thus tends to have the most impact. It’s the broadest measure of economic activity and the primary gauge of the economy’s health.

Final GDP came in as the secondary one did at 2.2. However, the expectation was GDP was going to come in at 2.4.  It was a narrow miss and not one that is likely to rock the market the way the durable goods orders did.  The market is slightly down due to the report, and while the EUR responded favorably initially to the report, it has since given up the gains and is now break even. Understanding economic reports and how they drive the market can allow us a better insight into the economy and why the market moves on a daily basis.  They can also provide an opportunity to perform news based trades in the currency market.

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