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How to join the dots of Forex Fundamental News

Analyzing news is an important part of forex market analysis

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 changes.

News is one of the fundamental factors in forex
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Nonfarm payroll

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?

Jobs data

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

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"Money is not an invention of the State. It is not the product of a legislative act. Even the sanction of political authority is not necessary for its existence. Certain commodities came to be money quite naturally, as the result of economic relationships that were independent of the power of the State."

Carl Menger - the founder of the Austrian school of economics