What is the NFP employment indicator and how does it affect the US dollar exchange rate?
One of the most important indicators of fundamental analysis is the unemployment rate, but in addition to this indicator, there are also indirect indicators that characterize the level of employment.
Non-Farm Payrolls (NFP) is one of the key indicators of the country's economic health for the United States of America.
This measure measures the total number of jobs created in the economy excluding the agricultural sector and is a significant component of the monthly employment report published by the U.S. Bureau of Labor Statistics.
Job growth indicates a strengthening economy and a potential increase in consumer spending, which in turn could lead to higher inflation and, as a result, a tightening of monetary policy by the Federal Reserve.
Inflation and exchange rates, how do price changes affect the exchange rate of the national currency?
The inflation rate is one of the key factors of the economy; its change affects a lot of other economic indicators, including the country’s currency exchange rate.
Let's try to figure out how inflation and exchange rates are related, and by how much the value of the national currency depends on changes in consumer prices.
It is generally accepted that there is a stable connection between changes in the inflation rate and the exchange rate of the national currency.
That is, as prices for goods and services rise, the value of the national currency falls in relation to other world currencies. And with the stabilization of domestic prices and the slowdown of inflation, the exchange rate will stabilize.
Economic Indicator – Baseline Durable Goods Orders
If you trade on news and use such a tool as an economic calendar , then you have probably come across such an indicator of the American economy as “Basic orders for durable goods”.
Moreover, the economic calendar indicates that it is a fairly significant factor and can influence the US stock and foreign exchange markets.
Therefore, we will try to understand what this index is and how its changes affect financial markets.
Core Durable Goods Orders is an economic statistic that measures the change in total new orders received by U.S. manufacturers for durable goods, excluding transportation.
Factors influencing the exchange rate of the British pound
The exchange rate is one of the key indicators of the economic state of the country; it is the value of the national currency that best shows confidence in its monetary unit.
In the case of the British pound (GBP), its exchange rate depends on many factors that can have both short-term and long-term effects.
Let's look at some of the main factors affecting the British pound.
Economic indicators of the country
The health of the UK economy is an important factor in determining the value of the pound. GDP growth , inflation rate, unemployment and other economic indicators can affect investors' expectations of future currency movements.
Sources of information for news strategy
The news trading strategy is one of the most popular trading options on almost any exchange platform.
It can be used both when working on the Forex currency market and when trading on the stock market or commodity exchange.
Despite its apparent simplicity, there are a large number of nuances that should be taken into account when using this strategy in practice.
The strategy itself has been described more than once on our website “ Trading on Forex News, ” but today we will talk about the sources of information from which you can receive signals to open transactions.
Fundamental analysis for forex and stock market, similarities and differences
In stock trading, two types of price analysis are used - technical, which analyzes the history of the trend, and fundamental, built on the analysis of financial indicators and news.
If technical analysis is inherently a fairly universal method of market research, then with fundamental analysis it is not so simple.
When using fundamental analysis, you should consider which market you are trading in and, depending on this, use methods appropriate to this market.
Today we will compare fundamental analysis for the currency and stock markets, or more precisely, how the same research method is used on different assets.
Secrets of economic indicators, Bernard Baumol. A Primer on Fundamental Analysis
The United States stock market has always been considered one of the most profitable markets in the world.
It was trading in American securities that allowed many financiers to earn billions of dollars.
In addition, shares of American companies are an excellent object for long-term investments, which not only bring their owner a stable income in the form of dividends, but also grow in price.
In order to select the most promising investment object, you need to conduct a thorough analysis of the market situation.
This is quite difficult to do; for highly effective analysis, you need knowledge of microeconomics and finance, as well as the ability to draw the right conclusions.
The book “Secrets of Economic Indicators” written by analyst and director of a consulting company Bernard Baumol will be useful to investors and traders.
Books on fundamental analysis of the stock and currency markets
One of the choices that a novice trader has to make is choosing the market analysis option that is most effective for work.
This is quite difficult to do since technical and fundamental analysis have approximately the same number of supporters.
At the same time, there is quite a lot of literature on technical analysis and at the same time it is much more difficult to find books on fundamental analysis; for some reason, the authors do not particularly like to describe this particular option for studying the market.
Although, in my personal opinion, a forecast based on news and the current economic situation has a much greater chance of success.
And the basic principles used in fundamental analysis are much easier to understand than to delve into the intricacies of technical analysis.
How is fundamental analysis of the stock market carried out?
In order to consistently make money on securities, you should use fundamental analysis of the stock market.
Yes, many traders assure that technical methods of studying trends are no less effective, but I still prefer to use fundamental analysis on this exchange.
Unlike Forex, analysis here is more complex, since several sources of basic information are used.
The first is news, the second is company reporting, and the third is trends in the industry in which the selected company is located.
That is, in order to make a forecast for the stock price, one should take into account not only the financial state of affairs within the enterprise, but also how good the prospects are for the industry as a whole.
Forex macroeconomic indicators
It is no secret that there are two main methods of market research - technical and fundamental analysis.
The first type of analysis, namely technical, is designed to analyze the inertia of market movement, crowd behavior and psychological analysis of a particular category of traders.
The second type of research is based on the study of the country’s economy, its potential, as well as factors that may influence changes in the exchange rate of the national currency.
It is worth noting that both of these types of analysis are, one way or another, interconnected and effective.
However, it is worth clearly understanding that any strong changes in the quotes of the selected asset always occur on economic grounds.
How to use an economic calendar for stock trading
Efficiency on the stock exchange directly depends on the ability to analyze; the analytical mind is one of the main qualities of a trader.
First of all, a trader must not only understand certain processes that occur with a certain currency instrument, stock or futures, but also be able to track, find and sort huge amounts of data that are relevant and can affect the movement of quotes.
However, few traders can boast of the ability to make any forecasts based on analytical data.
Fundamental market analysis has managed to give rise to so many myths that beginners, as soon as they hear a phrase about news, begin to avoid them like fire, not to mention subjugating certain patterns that they cause.
"Trading Bad News"
Fundamental market analysis usually gives the best results if it is aimed at identifying a downward trend.
Bad news that is associated with various terrorist attacks, natural disasters or the outbreak of hostilities in a certain region has always had an impact on the exchange rate of the national currency.
The precursor to writing this article was the terrible terrorist attack that occurred in France, where, according to official data, 128 people were killed and over 250 people were injured of varying degrees of severity.
According to preliminary data, the terrorist attack was carried out by representatives of the Islamic State, to which the entire world community declared war.
Such an event in the center of the European capital caused a very violent reaction from society, since one of the explosions occurred right in front of the President of France during a football match between national teams.
Fundamental analysis of the Forex currency market
Forex trading requires not only the ability to open trades and work with a trader’s trading terminal, but also knowledge of fundamental
analysis.
This type of studying the foreign exchange market is easier for a novice trader to understand, so it is recommended to start learning the basics with this discipline.
Fundamental Forex analysis - studies the main factors that influence the formation of exchange rates; the resulting data allows not only to obtain information about the current situation on the market, but also serves as the basis for making forecasts.
Learning the basics of this discipline will only take you a few weeks, but after that you will no longer open trades blindly, but will be able to develop your own effective trading strategy.
It should be noted. that we are talking about the basics, since a full course of studying fundamental analysis can take you more than one month.
Australian Business Confidence Index from NAB and AUD/USD
Another important indicator that uses fundamental market analysis is the business confidence index.
A trusting relationship between the investor and the state is a key condition for
the development of successful business in any country in the world.
Agree, if you do not trust the state, do not believe that you will receive your payments without securities courts, or your business can simply be squeezed out of you, you will never invest in such a state and its economy.
The Australian Business Confidence Index is a macroeconomic indicator that is released in the first half of the month, and its main purpose is to measure the level of business confidence in the government and its structures.
The index is calculated by the National Australia Bank through a survey of 350 different companies from small to large. Thus, a general picture of investor confidence in the state is formed.
The effectiveness of fundamental analysis.
For many years now, there have been debates among traders about how effective fundamental analysis is when trading on the stock exchange; recently,
it is the opponents of this method of market research who have won.
Technicians - traders who trust exclusively in technical analysis - argue that the effect of news on the market is not predictable and this becomes the reason for unprofitable transactions.
Indeed, this fact takes place, but not everything is so clear in this matter.
Firstly, it should be recognized that it was fundamental market analysis that was the first to be used as a method of studying the market, long before currency pair charts and other technical analysis tools .
So why are so many people now claiming that fundamental analysis is not effective?
US Manufacturing Purchasing Index (PMI) and EUR/USD
One of the most popular fundamental analysis tools that
every fundamentalist uses are indices.
Opening any economic calendar, you will see a picture that they are highlighted as strong volatile news, and regardless of the service where you get information in order to conduct a fundamental market analysis, indices are given special attention, describing their importance and impact on the course of the national economy. currencies.
In terms of the degree of their influence on the thinking of traders and investors, indices can be placed in second place after such macroeconomic indicators as GDP, interest rate, and trade balance.
But is this really so? Does the news release on a certain index really have such a strong impact on market participants?
US Retail Sales Index and USD/JPY
The impact of growing retail sales on the stability and prosperity of any country's economy
is obvious. Without having any economic education, you can easily build a logical chain that directly traces the relationship between the growth of retail sales and the development of the country’s economy.
When you see data on retail sales, you should immediately understand that you are indirectly analyzing consumer spending, production and, oddly enough, employment.
All three of the above criteria, one way or another, are included in the basic retail sales index, since with the growth of retail sales we can observe an increase in jobs, expansion of production and small businesses, and we also track how much richer the citizens of the country have become.
Key news for forex trading.
The main source for trading based on fundamental analysis is financial and
economic news; it is they that have the greatest impact on changes in the exchange rate.
Moreover, this category of factors does not equally affect the price of a currency; one piece of news can cause a jump of 50-100 points or even change the direction of the main trend, while another will go completely unnoticed.
Therefore, the main news for Forex trading is usually classified by degree of importance.
As sources of signals, it is advisable to use only the most significant events that can cause significant changes in the course. What most strongly influences the Forex trend ?
US trade balance and EUR/USD
Unlike trading based on technical analysis, almost all entries into a position using a news robot
have an economic justification.
However, not all news has the same impact on the market, and many often mistakenly associate the degree of importance of the news and the possible reaction of the trend to its release.
After reading the fundamental analysis section of our website, you can see that sometimes obvious news like GDP may not have as strong an impact as many write and claim.
Thus, finding out the real reaction of the market to the main macroeconomic indicators can open the eyes of many beginners who have embarked on the path of studying fundamental analysis.
US GDP and EUR/USD pair.
The release of US GDP data has an undeniable impact on all currency pairs in which
the dollar is present. If you take any textbook on investing or stock trading, very much attention is paid to the GDP indicator,
Moreover, after reading information about the possible impact of GDP on the dollar exchange rate, the opinion that this is 100 percent news, on which almost everyone makes money, is smoothed out.
Having attended courses where they talk about how fundamental market analysis is carried out, you will also be told how by publishing this data you can earn large sums of money by devoting only a couple of minutes of your time to analyzing this indicator.
But is this really the case? Is the news really working itself out the way almost all trading gurus and various educational textbooks say?
UK manufacturing output. Impact of news publication on the GBP/USD currency pair
Countries with developed industry have always been famous for their stable economy,
budget growth and rising social standards.
Thanks to the constant export of industrial products, the state forms reserves of foreign currency, which is so necessary to maintain the stability of the entire economy as a whole and the banking sector.
The amount of taxes collected from industry is simply huge and takes up the lion's share of the country's GDP.
Thus, industrial development is a direct path to economic growth and prosperity of any state.
Reasons affecting the US dollar exchange rate
There are many reasons why the exchange rate of the American dollar decreases or, conversely, increases; you need to know them if you are in one way or another connected with this currency, and especially if you trade on Forex.
Fundamental Forex analysis is simply unthinkable without knowledge of these factors.
The US dollar is one of those currencies whose exchange rate is affected by literally everything, from the direct impact of news from the stock markets to the publication of data on the state of the economy of the United States of America.
If you keep track of the appearance of a new message regarding the American currency in time, you can make good money or simply save your existing capital from shocks.
Upon closer examination, the dollar no longer seems to be such a stable currency as most economists imagine it to be.
Gold and exchange rates.
Currency correlation is one of the key aspects that is widely used in
Forex trading, but at the same time, there are other options for the relationship between exchange rates, for example with the price of gold.
Gold and exchange rates, these two instruments of trading on the stock exchange, have always had a fairly close relationship.
This made it possible to use this factor to predict trends in currency pairs and prices for a given precious metal. The main factors that influence this relationship are the dependence of the country’s economy on the price of gold and the place of a particular currency in the global foreign exchange market.
Changes in the number of applications for unemployment benefits in the UK. Impact of news publication on the GBP/USD currency pair
An increase in costs that are financed from the budget almost always negatively affects the
national currency.
That is why this aspect is always taken into account when conducting fundamental market analysis on Forex.
The volume of financial flows that have to be paid for unemployment benefits for each state is one of the most costly, and the more developed the country, the more money is spent on supporting citizens.
This is primarily due to the social standards that are accepted within the country.
However, the chain by no means ends with simple financing, since with an increase in the unemployed population, the income of taxes paid to the budget by the employer decreases, the population becomes impoverished, which in turn leads to a deterioration in a number of economic indicators.
Basics of fundamental analysis necessary for working on the stock exchange
For successful trading, it is usually necessary to use fundamental Forex analysis simultaneously with the use of technical analysis.
No matter how the techies claim that technical analysis includes everything, the integrated use of both directions of analysis of the Forex currency market still has a greater effect.
The main advantage is that you know in advance where the price may go, and do not react belatedly to changes in the trading terminal. If technical analysis is based on the history of the market, then fundamental analysis allows you to see its future and be one of the first to enter the market.
Moreover, to trade Forex, it is not at all necessary to conduct an in-depth study of the economic situation in the country and analyze the prospects for the next few months; it is quite enough to know the basics of fundamental analysis and correctly assess the impact of events on the exchange rate.
This is the simplest option for receiving trading signals to open positions, so this is where you should start learning the basics of the forex market.
Change in US nonfarm payroll from ADP. Impact of the news on the Euro/Dollar currency pair
For almost any trader who practices fundamental analysis and
news trading, the release of fresh data on the number of people employed in the non-agricultural sector of the United States is just a tidbit that they simply can’t profit from.
The importance of the release of this indicator is very great, since the market almost always reacts strongly to it. The fact is that the number of employed people in a country is a direct indicator of the strength of the US economy.
We should not forget that there is a direct relationship between the growth of the employed population and the growth of the country’s GDP, because the more people work, the more the state can fill its coffers from taxes and reduce spending on unemployment benefits.
ADP Change in US Nonfarm Employment is a leading indicator derived from an anonymous survey of a large number of US businesses and approximately 400,000 individuals surveyed. Why do I claim that the news has a leading effect?
Factors of fundamental analysis.
In order to use fundamental analysis in relation to Forex, you need to understand what factors have the maximum impact on the movement of currencies and how to correctly take them into account when planning new transactions and closing existing ones.
Factors of fundamental analysis are not only the main economic and financial news, but also other messages that directly affect the trend.
Therefore, you should be as careful as possible when conducting analysis.
New Zealand Producer Price Index. Impact of the news on the NZD/USD currency pair
Data on national currency inflation are always taken into account when drawing up long-term forecasts for changes in
exchange rates.
These are some of the indicators that make fundamental market analysis more effective.
Moreover, it does not matter which instrument you work with - dollar, euro or franc - inflation data always has a great influence on the movement of the chart.
Since the inflation indicator almost without error helps the trader to predict the possible movement of a currency pair, draw conclusions about the economy and add up the overall picture as a whole.
The New Zealand Producer Price Index is a leading indicator that can accurately show the level of inflation.
To calculate it, data is taken on manufacturers’ costs for materials, semi-finished products, and components.
Volume of industrial production in Japan. Impact of the news on the USD/JPY currency pair
Industry in any country is the engine of the economy, its heart.
Japan, unlike many other countries, is very dependent on the development and stability of the industrial sector, since the number of factories that are associated with industrial production is simply huge.
It’s worth counting the names of the brands of Japanese car manufacturers, special equipment and various industrial equipment, which are supplied to all corners of the world.
Economic policy in Japan is also aimed at developing the industrial sector and maintaining the industry as a whole, since the Central Bank of Japan deliberately underestimates the exchange rate of the national currency in order to make industrial goods competitive and gain price superiority over producers in other countries.
News and their expectations during stock trading.
Almost every trader is familiar with the news trading strategy, which involves opening trades immediately after
the release of this or that news.
But not everyone knows that sometimes the market reacts more strongly to expectations than to the news itself, and using this aspect in trading brings much greater profit than transactions after the news is released.
Therefore, when conducting fundamental market analysis, one should take into account not only those events that have occurred, but also those that are still expected.
At the same time, there are public and hidden factors that should also be taken into account when planning your transactions on the selected currency pair.
Only in this case will you be able to reduce the number of errors when opening positions. • Typically, trading on news is based on a fairly simple scheme - after the benefit of the next news, its impact on the currency is analyzed and if the impact is positive, a deal is opened to buy this currency, if negative - to sell.
Retail sales volume in Australia. Impact of the news on the AUD/USD currency pair
The volume of retail sales has a direct relationship with the Australian dollar exchange rate.
Thanks to this indicator, a trader can easily assess the state of the Australian economy, the dynamics of development, or, paradoxically, its deterioration.
The essence of the index is that information is taken on all retail sales from various store owners and points of sale of retail goods, and both small businesses and large retail chains that engage in retail trade are taken into account.
What can retail sales data tell us?
Yes, first of all, about the availability of money among the citizens of the country. If citizens actively buy goods and turnover from retail chains does not decrease, but rather increases, this tells us that people are earning money, have a strong support in the form of the state and a healthy economic climate, thanks to which social standards and the well-being of the country as a whole are increasing.
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