How to join the dots of Forex Fundamental
Analyzing news is an important part of forex market
There's a skill in analysing fundamental analysis that doesn't simply involve paying attention to the latest
upcoming economic calendar events listed on our calendar and then making decisions regarding potential trades and
adjusting our existing trades, dependent on a single news item, or data release.
The real skill of fundamental analysis involves constant awareness and reading of the economic subject
matter, the sector and the whole of the forex market, whilst ensuring you're constantly on message regarding any
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As it's recently been "NFP day" (non farm payroll day) in the USA, we'll use this important high impact news release as an
ideal example of how we can analyse the jobs market before the release, in order to make a decision and
prediction on where the markets may be headed, dependent on the number released. It must be noted that despite
many analysts and traders focusing exclusively on and becoming fixated with the headline non farm jobs data,
there's a raft of other employment/unemployment data released on the same day.
We need to consider many of the other employment and unemployment data currently available from the USA, from
both the BLS (Bureau of Labour Statistics) and for example ADP, a private payroll company. It must also be noted
that NFP day does not necessarily deliver the market fireworks it has in the recent past, because employment in the
USA is high and unemployment levels are at a sixteen year low, some experts citing that the USA is currently close
to what's termed "full employment".
Employment and unemployment figures
We receive weekly new unemployment claims data from the USA, relating to the previous week and continuous claims
published each week, every Wednesday afternoon. Naturally, the week the NFP data is published these figures take on
extra significance. We should also look at extra employment data, such as the current; labour participation rate,
the underemployment rate (what's termed U6), earnings, hours worked etc. In this way we're
able to build up a picture of where the overall employment/unemployment figures are currently and where prices
of various securities (such as the major dollar pairs), will be
headed, once the NFP data is released.
We should also analyse other data relating to employment conditions, for example:
- what is the current hourly and weekly wage rate regarding USA employees,
- are employees wages growing,
- are the hours worked (on average) by each worker rising, or shrinking?
Each month we also receive from the USA official body the BLS, what are referred to as "JOLTS" data; job openings data concerning the amount of new job openings available at
any given time in the USA and a rolling picture of the job openings annually.
Finally, we receive data from a private payroll firm ADP, who release their jobs data shortly before and
generally in the week the NFP data is published, on the first Friday of each month. Analysts will look towards the
ADP figure for clues as to what the NFP figure will be on the Friday, however, it's by no means a certainty that if
the ADP number beats expectation, the NFP number will follow suit.
It's essential that we build up a picture by compiling and analysing all the employment and unemployment data
available to us, not just on an ongoing basis, but before a significant employment/unemployment announcement is
made public. Not just to perhaps anticipate the number about to be published, but to also gain an overview as to
the overall health of an economy. And we should extend this form of in-depth examination and analysis for many
economic subjects and sectors, not just jobs data.
Article Sources: http://blog.fxcc.com and www.investopedia.com