US Data Releases
We have included two segments that you must understand whilst you trade. These are highly important data flow and important data flow. The data highlighted below can move the markets in any direction, so understanding what they mean for the economy will give you an edge on how to react.
- Highly Important Data Flow
These data points are expected to move the market on an intraday level and edge the bias over a longer period of time.
Non-Farm Payrolls
You would have heard of this if you have read about Forex elsewhere. It is one of the most volatile times in the marketplace, primarily thanks to the hype it gets around the data point from brokers and people telling you how to trade it.
DO NOT TRADE THIS DATA POINT.
They encourage you to trade it because it creates a very volatile period, in just a space of 5 minutes it could do 50-300+ pip up and down round trade.
It makes it exciting for new traders seeing the price rise or fall rapidly…
It is a poor trading decision if you want to trade on this news.
We use the data provided by the Non-Farm Payrolls as an indicator of job growth in the US and accounts for 80% of the works who contribute towards the GDP. An increase shows a growing economy and a decrease shows a contracting economy. That is of course at it’s most simplistic form.
The report is published once a month on the first Friday of the month.
Gross Domestic Product
Gross Domestic Product (GDP) is a value of all the goods and services produced by a country.
It is a strong measure of economic health. So a positive growth in GDP = better economy. Negative growth in GDP = contracting economy.
The formulae for it is GDP = C+G+I+NX
Or:
GDP = Public Consumption + Government Spending + All of a country’s businesses spending on capital + the country’s Net Exports
Federal Open Market Committee Meeting (FOMC)
The FOMC happens 8 times a year to discuss monetary policy changes. Any changes that have been decided on are announced immediately. The Federal Reserve determines the interest rate policy, so any announcement after the meeting is very important. It allows us, as serious traders, to get an understanding of what the members of the Fed who are in charge of the direction of the US’s economy.
The important point to take away here is that these meetings can either raise or cut interest rates, which are used to stimulate the economy but it also reduces the value of the currency. So you should be watching majors like a hawk.
US ISM Manufacturing
ISM stands for Institute of Supply Managers which is a strong indicator of the economic health of the manufacturing sector.
It is based on five indicators of economic health:
- new orders
- inventory levels
- production,
- supplier deliveries
- the employment environment.
To gauge the health of the economy, if an ISM Manufacturing reported 50 or higher indicates that the manufacturing sector is expanding compared with the previous month. Anything lower than 50 suggests that the manufacturing sector is contracting compared to the previous month.
US ISM Non-Manufacturing
Like ISM previously, this is an indicator of economic health across all sectors except manufacturing.
It is based on five indicators:
- new orders
- business activity
- prices
- the employment environment.
Similar to the other ISM reported for manufacturing, to gauge the health of the economy if an ISM non-manufacturing reported 50 or higher indicates that the non-manufacturing sectors are expanding compared with the previous month.
Anything lower than 50 suggests that the non-manufacturing sectors are contracting compared to the previous month.
University of Michigan Confidence Index (MSCI)
The MSCI is a survey of consumer confidence to gather information on consumer expectations for the overall economy.
The preliminary MSCI report, which equates to roughly 60% of total survey results, is released around the 10th of each month. A completed report for the previous month is published on the first of every month.
We use the MSCI as an indicator as it allows us to view how real-consumers feel about spending their money.
Consumer Confidence Index
This index measures how optimistic or pessimistic consumers are with the economy in the short-term. The theory behind this index is that if consumers are optimistic then they will spend more money on goods and services, which will, in turn, stimulate the economy.
Initial Jobless Claims
This is a report of the number of jobless claims filed by individuals who are applying to receive state jobless benefits. This is a subtle insight into the direction of the economy because this is a weekly report.
The more initial claims positively correlate with a weakening economy and vice versa for lower initial claims.
Continuing Claims
This is a data release that shows the number of individuals who are already filing for and are continuing to file for state jobless benefits.
Existing Home Sales
Existing home sales is a powerful data release as it shows the number of home sales from the previous month. It measures demand in the real-estate sector.
New Home Sales
A data release that measures sales of newly built homes, which again shows demand in the real-estate sector. However, this time it shows demand for the new builds only.
There is an awful lot of information here, but serious traders can deduce information from these data points and make a long-term bias to predict future movements 18 months in advanced. For now, keep an eye out on what the reports say.
Not only will the above economic data help you out, but this article on forex pairs that correlate can help you determine which pairs will move together on economic impacting events. In addition, you can use the supply and demand zones guide to find pockets of trades in preparation for these news events.