Information from the economic calendar
if we know what to expect of this or that statistical data, news, or statements (what kind of influence on the market crowd), the only question remaining is: where do we get the information from? The information is provided by economic calendars. The economic calendar is some sort of a schedule of news, statistics, and events, topical for the international market. Even those who work by the tech analysis, keep an eye on the calendar because at the publication of important news, surges in volatility may take place, and many traders prefer to remain out of the market at such times.
The advantage of the economic calendar is the fact that it contains all the necessary data in a structured form. All the events and publications in it are marked by the level of importance.
The economic calendar reflects the news that is scheduled for the nearest and subsequent trading sessions. This is one of the first instruments that a beginner must master. The calendar tells us and helps to track the following information:
- the time of publication;
- the origin of the news (flags of countries are used);
- the text of certain news: for example, a speech of the head of a Central bank, the decision on some interest rate, or some economic statistics;
- previous statistical data;
- the importance of the publication.
Such a structure makes the calendar user-friendly. A trader can get what to expect from the market in a split second, what to pay attention to, and how to plan their actions for the nearest trading session.
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How to work with the economic calendar?
To work efficiently, you need to check the calendar not for the current day only but also for the upcoming days. Traders prefer to prepare for certain events in advance. Such an event might be a meeting of a Central bank where a decision on the interest rate will be made. The market may react emotionally even if the interest rate remains without changes. However, in certain cases, the market plays on the news beforehand, on expectations, hence, at the publication, there will be no special volatility. Anyway, such events are worth paying attention to.
Checking the calendar for today, a trader can understand at once how probable high volatility is. Normally, when there is no important news, the market is quiet. However, there are no rules without exceptions. In a quiet market, even a minor piece of news can provoke a tornado.
Of course, forecasts about the dynamics of currency pairs after the publication of certain news are never 100% true. Sometimes an exchange rate may show an abrupt movement to one side, then to the other.
That is why many experts recommend relying on both tech and fundamental analyses instead of contrasting them. Both types of analysis give equally important forex signals.
The economic calendar and news are vital instruments but not the only ones. Pay special attention to the most important news: there are plenty of events in economic life but only the most important ones are really influential.
The economic calendar is useful even for those who are skeptical about fundamental analysis. This instrument will help them detect periods of maximal volatility.
👉 If you’d like to read more about economic calendar, make sure to check out Economic Indicators — The Basis for Forex Trading Strategy article.
Nonfarm Payrolls, and how to use them
One of the most important pieces of macrostatistics that can influence a currency pair in the short and medium run is the Nonfarm Payrolls. They demonstrate the number of new workplaces in all sectors of the economy apart from the agricultural sector.
As a rule, this data is published on the first Friday of every month at 9:30 a.m. (USA); rescheduling is rare. Apart from the (un)employment rate, it also provides information about the gross payroll, worked hours, average hourly earnings. The NFP shows not only the current number of workplaces but also that in the preceding period. The statistics influence the dynamics of currency pair, gold, oil, other goods nominated in the USD. The nonfarm income pool amounts to 79% and creates the GDP.
Quite often, the NFP is not the final info and are to be corrected in the next trading period. When the report is published, the market may experience increased volatility and other reactions. The NFP statistics show which sectors generate the largest profit or losses. The NFP contains all types of services: retail and wholesale, financial activities, production of resources, healthcare, building, goods production, transportation, storage, informatization, entertainment, tourism.
Apart from the information on certain sectors, the NFP contains additional elements, such as the average length of the workweek, average hourly earnings, and changes compared to the preceding period. There are certain patterns to be seen in the reports. As a rule, employment and household income grow better in May and fall in August.
Before the NFP is published, take a look at the UoM Consumer Sentiment. A decline in the index almost always means a decline in the NFP compared to the previous period. The growth of the ISM Manufacturing Production index also characterizes the upcoming NFP. Do not forget that after the publication of the index itself, the head of the Fed will say his word” many investors wait for his comments and only then make decisions. That is why volatility in currency pairs does not end until the end of the trading session. If the statistics do not differ much from the expectations, the fluctuations in the first hour after the publication are between 5 and 20 points.
For example, if the info is positive (a lot of new workplaces have been created), the market may help the dollar become stronger and provide conditions for playing long. The more traders take long positions simultaneously, the steeper and higher may the USD grow.
After detailed analysis we may find out that the average earnings have shrunk, so have the work week done, compared to the previous period, and on top of that, the data from the previous month may be revised for worse. Moreover, the head of the Fed in his comments may promise that the interest rate will long stay without changes (until inflation meets the expectations of the economy). All these factors influence the volatility of assets traded in pairs with the USD. The initial movement after the publication may not only be covered by the second wave, but the price may also reach a new local extreme. And the comments of the main civil servant may bring the pair back to the level of the conditional parity.
👉 For more, check out How to Make Money on Non-Farm Payrolls.
An example of working by the NFP
Here is an example of entering a long position by one of the strategies based on the NFP:
- Better expect the NFP data in all positions; the previous data must be revised for better;
- Enter after a 5-minute candlestick with a large body and small shadows form right after the publication of the NFP;
- The Profit/Loss rate must be 1:1 at least;
- The aim is the nearest important local high;
- Bring the SL to the entry level and close a half of the volume of the open trade at the moment when the price reaches the target level.
Summary
The analysis of information is a complicated process that requires not only considering final digits but also studying the whole report in all the sectors of the economy. Only after that, a trader may make good guesses of the reaction of market players.
The fundamental analysis must not make you neglect technical factors. Larger players may use the NFP information for entering more profitable trades by pending orders. They buy/sell a currency instrument when a normal investor, making sure a Price Action pattern has formed, makes a trade but the market reverses. Options, support/resistance levels, Fibonacci lines are vital for fundamental analysis because they indicate reversals and corrections.
Most often, the aim of a movement after certain news may be an important price level, where the market may reverse or correct and go on going along with a long-term trend.
By Dmitriy Gurkovskiy, Chief Analyst at RoboForex
