Forex Trade Signals

Most people who get involved with forex trade signals that don’t understand the significance of the US Non-Farm Payroll report to the global financial markets . Many people ask me , " why each month does the number of US jobs cause the market to bounce up and down after it has been released ?" To provide an answer to the question it is important to look at what is represented by the US jobs number . This gives insight into why nothing else can make the markets move in this way.

The US Non-Farm payroll report is released on the first Friday of every new month . It is released by the US Bureau of Labor and Statistics or (BLS) and what it does is measure, quantitatively , is the number of new jobs, outside of farming , created in the prior month by the US economy . This announcement is so important because the health of the US and global economy are both reflected . Just remember, the US economy is the largest in the world and consumer spending is the main component driving the economy in the US ; actually making up 70%!  So , in forex trade signals, 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. Probably the most important data for the Fed to use is this job report in order to set their short term interest rates and because it works this way, often the Non Farm Payrolls report actually can, can lead to market volatility.
Wondering why the Federal Reserves decision on short term interest rates are related to the jobs report ? A wonderful question! If the jobs report comes out strong usually it means that people have employment and the utilization of resources is high . This means workers are being hired by companies and these workers are going out and spending money too on clothing, eating out, and more and the economy is driven by these things ; they help to heat or grow the economy. There is more money in circulation when the economy is growing and inflation must be kept in check by 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 . So it’s easy to see, the jobs number is one of, if not the primary factor , driving all this right under the surface.
When you’re getting ready for your forex trade signals day or week ahead , look closely at the information that is going to be released on the events calendar. If you are still in the month’s first week then you’ll have the Non-Farm Payrolls report to look forward to on Friday of that first week since this is always the day of release. If after the release of this report you want to take advantage of the market’s volatility , simply keep the following formula in mind : If the jobs numbers are stronger than expected this usually means a stronger economy which means short term interest rates will go higher, strengthening the currency . Oppositely, if you find the jobs report is weaker than it was expected to be usually you’ll get short term interest rates that are lower, causing weakness of currency . It doesn’t always happen this cut and dried, but knowledge of these general parameters will give you a leg up on your fellow trading competitors .