Thursday, 21 October 2010

• How US Non Farm Payrolls Work In Auto Forex Trading

  Many who are concerned with auto forex trading do not realize how significant to the global financial markets the US Non-Farm Payroll happens to be. I'm often asked, "why does the monthly US jobs number led to ups and downs in the market?" To give you an answer it is important to look at what is represented by the US jobs number . This will show us why it can make markets move in a way nothing else can .

  The US Non-Farm payroll report is released on the first Friday of every new month . This report is put out by the US Bureau of Labor and Statistics and the things that it does measure, is the number of new jobs, outside of farming , created in the prior month by the US economy . It is such an important fundamental news announcement because the health of the US and global economy are both reflected . After all , the US economy is the largest in the world and the single largest component that drives the US economy is consumer spending ; to the tune of no less than 70% !  Thus , in auto forex trading, because a country's interest rates is the number one factor affecting the strength or weakness of its currency , one must look to what drives the actual interest rates themselves ; or the US Federal Reserve policy on interest rates. The jobs report is probably the single most important piece of fundamental data that the Fed uses to set interest rates for the short term and because of this the Non-Farm Payrolls report can, and often does , lead to quite a bit of volatility in various markets .

  
  Wondering why the Federal Reserves decision on short term interest rates are related to the jobs report ? Great question ! If the jobs report is on the strong side that generally means that people are employed and resource utilization is high . This also means that companies are employing workers and these workers are going out and spending money too on clothing, eating out, and more and these are the things that help to drive an economy; they help to heat or grow the economy. When the economy is heating up more money is in circulation and keeping inflation in check is very important for the Federal Reserve. The way they keep inflation in check is that they raise short term rates to lower inflation and cool down the economy , or they heat up the economy by lowering the short term rates to help raise inflation . As you can see , the jobs number is one of, if not the primary factor , beneath the surface driving this .

  
  So next time you are preparing for your auto forex trading day or the next week , remember to take a look at the events calendar for the fundamental information that is scheduled to be released that upcoming day or week . If it's the first week within a month then on that Friday there will be the release of the Non-Farm Payrolls report because that is when it always comes out . If you're looking to take advantage of the volatility that comes after the release of the jobs report , just remember the following formula : If the jobs numbers are stronger than expected this usually means a stronger economy which will lead to a strengthening of the currency because short term interest rates go higher. On the other hand , if you find the jobs report is weaker than it was expected to be then this usually means lower short term interest rates that lead to currency weakness . Of course it's not always this cut and dry or black and white , but knowledge of these general parameters will give you a leg up on your fellow trading competitors .

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