The Gfk Consumer Confidence report details the level of consumer confidence in the economy in several key nations in Europe, specifically the United Kingdom and Germany. The reports for these two companies are two of the most followed forex trading reports in terms of gauging the mood of the economy, and help give an idea of what the general population “feels” about the fate of the economy over the next 12s months. Since consumer confidence is considered valuable by forex traders, these reports are followed closely.
Purpose and Usage
As mentioned, the purpose of the Gfk Consumer Confidence report is to gauge the sentiment of the consumer population in a country’s current and future economy. It seeks to serve as an accurate predictor of what people expect to happen in the country.
According to the creators of the report, German market research company The Gfk Group, the Gfk Consumer Confidence surveys “tracks changes in personal finance, the general economic situation, inflation, unemployment, the current purchasing climate, and consumer spending and saving”. This data is then used by a wide variety of individuals and officials in the financial and economic sectors, especially foreign exchange traders looking for more information on the economy as a whole.
The theory behind the link between forex trading and consumer confidence surveys is explained in more detail below.
The Gfk Consumer Confidence survey is conducted monthly throughout the European Union and the United Kingdom on behalf of the European Commission. The recipients of the survey are asked questions regarding changes in their personal situations and those of their households concerning their general economic situation, personal finances, employment, spending, and saving. They are also asked about their feelings regarding inflation, unemployment, the general economic climate, and other related issues.
The results are then placed on an index ranging from 0 to 200, with higher numbers representing higher levels of consumer confidence. 100 is the mid-point; numbers higher than 100 represent a general sense of optimism, while numbers lower than 100 represent a general sense of pessimism.
Impact on Forex Trading
Consumer confidence is thought to impact forex trading to some degree because a great deal of movement in an economy occurs due to consumer spending. Likewise, stagnation is thought to be due to decreased consumer spending and increased consumer saving. The reason behind these moves is the general feeling of a person or household regarding whether it is safe to spend, or prudent to invest.
Therefore, foreign exchange traders pay attention to the Gfk Consumer Confidence report because they believe increasing consumer confidence is a sign that the economy will pick up over the near term – or the opposite; that the economy will fall following a prolonged trend of decreasing results.
There are two major problems with the Gfk Consumer Confidence report. The first is that the timeline is prolonged and not very timely. Consumers are predicting what will happen over 12 months, which is too long of a window for most forex traders. The second is that it is imprecise and relies on general sentiment, which is often vague. For these reasons, the Gfk Consumer Confidence report usually does not move the market very much upon release.