How to Assess Economic Data from a trading perspective?


Traders who are just starting to learn Forex markets may wonder how to assess economic data and use it while trading. The following article introduces Traders to the ECB and FED meetings; the unemployment rate, non-farm payrolls, and services PMI.

9 December, AtoZForex How to assess economic data from a trading perspective is not always clear. How many times have traders come across articles, starting with sentences like “Markets are awaiting the European Central Bank’s (ECB) meeting and many expect rates to remain unchanged…” or “FMOC statement is about to be released”. Individuals who begin life as forex traders with no financial background may wonder how various economic data releases affect their trades.

In light of this, AtoZForex launches a series of articles dedicated to explaining how to assess economic data releases from a trading perspective. This particular article covers various economic data releases. Specifically, those from the ECB, FED meetings and data based economic indicators such as the unemployment rate, non-farm payrolls, and services PMI.

Assess Economic data – Quantitative and Qualitative based

New traders must educate themselves to the different types of news releases, mainly categorized into two major types:

  • Quantitative or data based news releases, for example, minimum bid rates, unemployment claims,  PMI service, etc;
  • Qualitative or non-data based new releases, for instance, speeches, press conferences, lectures, FOMC statement, etc.

All the news releases are categorized into high, medium and low impact news.

AtoZForex Note:  Majority of traders focus on the high impact news events. Traders can experience high volatility during these news releases.

Assess economic data: ECB and FED meetings

European Central Bank 

European Central Bank Press Conference is scheduled to take place eight (8) times per year. The minimum bid rate is announced separately before each ECB press conference commences. This is the rate at which banks in the EU Member States charge for borrowing money. The press conference lasts for around an hour, consisting of a prepared statement read by the ECB President, followed by a questions and answers session. The ECB informs investors about future monetary policy and comments on factors that impacted recent interest rate and policy decisions. ECB provides an overall Euro-zone economic outlook.

What should traders look for?

Traders focus and look for clues affecting the minimum bid rate decision and future monetary policy.  Hawkish and dovish are frequently used words to describe the nature of the press statement. If the statement is “hawkish” it is good for the currency. Traders can expect the EUR to strength against USD and other currencies. Traders can experience swings in the strength of the currency. In both a positive and negative directions. Especially after quantitative based news is released, then by a qualitative related news event.

FED – FOMC Statement

The Federal Open Market Committee (FOMC for short) statement release is scheduled to take place eight (8) times each year.  Same frequency as the ECB press conference. The FOMC releases a statement including the decision on the interest rates and other policy measures. FOMC also discusses the current economic situation at the time of statement release. The statement usually differs slightly from the previous announcement.  with traders focusing on these small amendments. Again, the more hawkish the data released the better it is for the currency.

Trading perspective

Traders will focus on each word and look for clues affecting the interest rate decision and other policy matters.  Hawkish and dovish are frequently used words to describe the nature of the press statement. If the statement is “hawkish” it is good for the currency. Traders can expect the USD to strengthen against other currencies. Traders can experience swings in the strength of the currency, in a positive and negative direction. Especially after a quantitative based news is released, then followed by a qualitative related news event.

Non-Farm Payrolls (NFP) and Unemployment Rate

Non-Farm payrolls or NFP for short. This is a quantitative based news release. It indicates the number of additional jobs created in the previous month and excludes the farming industry.  NFP data is released at the beginning of every month . It is an important leading economic indicator and gives insight into consumer spending, and the overall status of the country’s economy.

NFP trading perspective

Traders look for what the market expects and anticipate the trade direction. If the number of jobs created is greater than market forecast,  traders can expect a positive impact on the USD currency. The currency movement range will be dependent on the deviation between the market forecast and actual. 

nfp

The Unemployment rate is the percentage of the total work force that is unemployed and actively seeking employment during the previous month. This is an important lagging indicator. The number of individuals seeking employment is a key indication of the country’s economic situation.  Those who establish and steer the country’s monetary policy consider it is an important indicator.

Unemployment Rate trading perspective

Traders look for what the market expects and anticipate the trade direction. If the number of individuals employed is greater than market forecast,  traders can expect a positive impact on a currency. USD in this case. The currency movement range will be dependent on the deviation between the market forecast and actual. 

jobless-rate

Services PMI

Services PMI presents the level of a diffusion index based on surveyed purchasing managers, focused on the service sector of a country.  This important economic indicator is used to determine the service sector’s strength or weakness.  It gives an important insight by purchasing managers.  Four hundred (400) purchasing managers rate the level of business conditions. This includes employment, new orders, production, inventories, supplier deliveries and prices.

Services PMI trading perspective

Traders look for what the market expects and anticipate the trade direction. The key level for traders to look for is a number above 50.0,  indicating that the industry is expanding.  A figure below 50.0 indicates industry contraction.  This data is seasonally adjusted. The currency movement range will depend on the deviation between the market forecast and actual data.

services-pmi

Think we missed something? Let us know in the comments section below.

Share Your Opinion, Write a Comment