Major Events

Unemployment Rate

The unemployment rate determines the percentage of total work force that is unemployed and actively seeking employment. This result is normally published once a month and gives traders an indication as to the strength of the economy. A downward trend has a positive effect on the nation's currency as working people tend to spend more money, increasing prices of products in the economy, eventually leading to higher interest rates.

NFP- Non Farm Payrolls

On the first Friday of every month the Bureau Department of Statistics, releases its monthly employment data. The NFP result is considered to be one of the major market movers and can often present intraday rallies of up to 200 pips.

For example on the 8th of May 2009 the U.S released its employment figures showing the following:

Unemployment showed an 8.9% figure, as expected.
NFP showed a much lower result than expected, releasing a -539.00k figure.
The result sparked major buying on the EUR/USD, sending the pair rallying


 
Non-Farm Payrolls is a monthly measurement that accounts for approximately 80% of the workers who represent the total GDP in the U.S. The statistic represents the total number of paid U.S workers of any business, excluding general government employees, private household employees, employees of nonprofit organizations that provide assistance to individuals and farm employees.

Interest Rates

Short term interest rates are the paramount factor in currency valuation. Central banks shift their interest rates to achieve market stability; when inflation rises hurting the economy, they raise interest rates to reduce prices. When the economy contracts, they reduce rates to stimulate economic growth. Currency investors normally seek a currency which is associated with a high interest rate in order to yield profit from the high return.

GDP (Gross Domestic Product)

This indicator is normally used to gauge the health of a country, as well as to measure a country's standard of living. Increasing GDP figures normal indicates towards a healthy economy, which is countered by rising interest rates. Negative GDP results show that the economy is contracting and is normally followed by rate reductions.

CPI (Consumer Price Index)

The CPI is considered to be one of the most widely watched indicators, measuring the state of inflation. The CPI is an index calculated according to the price of a basket of consumer goods that are tracked month by month. The goods that are followed are normally standard goods of consumption that every household consumes. This indicator is considered to be a market mover as interest rate levels derive from the level of inflation. A rising CPI is considered to mean that inflation is on the rise. Should this be the case, then central banks fight inflation using monetary methods, including interest rate hikes.

Remember:  Rising inflation can lead to a higher interest rate. This will attract investors causing the currency’s value to increase.Decreasing inflation can lead to a lower interest rate as central banks try to stimulate their economy. This normally leads to devaluation of a currency.

ISM (Institute for Supply Management)

This report is based on data compiled from monthly replies to questions asked of purchasing executives in more than 400 industrial companies. It reflects a compound average of 5 main economic areas. Normally a result above 50 points shows the expansion of economic activities, and data under 50 point’s shows an economic contraction.

Retail Sales

While one might not think that this is an important indicator the Retail Sales figure can often hint towards the overall strength of the economy. This indicator measures the amount of goods sold by companies within the retail sector. Every month the data is released in a form of a percentage, showing the difference between the current release and the previous one.
The data is released around the 12th of each month in the U.S.

Trading Tip- A result that deviates largely from expectations will always have a larger influence on the intraday session.

For example if economists are expecting a 1% figure to be released and the result shows a 1.6%, then it will have a larger influence on the currency market, compared to a result of 1.1%.

Durable Goods

This economic indicator is released by the Bureau of Census and reflects new orders placed with domestic manufactures for delivery of factory hard goods in the near term or future.

Housing Starts

Since the start of the 2007-2009 recession, housing data has received major focus among traders and investors. What started as a small housing problem, quickly spread throughout the whole economy as assets linked to the sub-prime dropped enormously in value. Housing starts, an economic indicator that tracks how many new single family homes or other residential buildings are constructed within a period of a month, dropped significantly during those years as the real-estate bubble burst. According to the U.S census Bureau single unit housing numbers dropped from approximately 1700 thousand units to a mere 356 thousand units in January 2009.   

Trading Tip- Housing data is classed as a leading economic indicator, regarding the economic future. Increasing housing activity after a market recession often indicates that an economy is recovering. Declining data during a bullish market often indicates that an economy is slowly weakening and that a major correction could take place.

Remember that people have to be feeling pretty comfortable and confident in their own financial position to buy a house. If housing starts increase, it normally means that there is an increase in demand from the end consumer. This can translate into a good sign for the overall economy.

PPI- Producer Price Index

Even though this indicator is less popular than the CPI it is still classed as an important indicator and is closely watched by economists. The PPI measures the average price level for a fixed basket of capital and consumer goods paid by producers.

The reason why this indicator receives importance among economists is because inflation at the producer level often gets passed through to the consumer price Index.

Inflation is a general increase in the prices of goods and services. Central banks observe these figures closely to determine whether high inflation is having a negative effect on the economy. They will often counter inflation by raising interest rates, which can also increase the popularity of their currency.

Beige Book

The Beige Book is a report on economic activity, published by the Federal Reserve Board eight times a year. The Beige Book is part of the Federal Open Market Committee’s preparations for its meetings. The report is released two Wednesdays before each FOMC meeting at 2:15 pm EST. The book is a summary of economic conditions in each of the Fed's regions. The report is primarily seen as an indicator of how the Fed might act at its upcoming interest rate meeting.

Composite Index of Leading Indicators

Released around the 20th of each month this index used to predict the direction of the economy’s movements in the months to come. The index is made up of 10 economic components, whose changes tend to precede changes in the overall economy. These components include:

1) The average weekly hours worked by manufacturing workers
2) The average number of initial applications for unemployment insurance
3) The amount of manufacturers’ new orders for consumer goods and materials
4) The speed of delivery of new merchandise to vendors from suppliers
5) The amount of new orders for capital goods unrelated to defense
6) The amount of new building permits for residential buildings
7) The S&P500 stock index
8) The inflation-adjusted monetary supply (M2)
9) The spread between long and short interests rates;
10)  Consumer sentiment