Most people who get involved with free forex training aren't able to understand the importance of the US Non-Farm Payroll report to financial markets on a global basis . I often get the question , "why does the monthly US jobs number led to ups and downs in the market?" To provide an answer to the question it is important to look at what is represented by the US jobs number . Then we will have our insights as to why it makes the markets move like nothing else .
On the very first Friday of a new month, the US Non Farm payroll is then released. This report is put out by the US Bureau of Labor and Statistics and what it quantitatively measures , is the number of brand new jobs, excluding farming, created in the prior month by the US economy . This announcement is so important because it reflects the overall health of the US economy and thus the global economy . In reality , in the world, the US economy happens to be the largest and consumer spending is the main component driving the economy in the US ; actually making up 70%! Thus , in free forex training, because the weakness or strength of a currency in a country is mainly affected by the interest rates in the country , 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 of this, this report can and usually does , cause significant volatility across the markets .
Why does this report have anything to do with the short term interest rates set by the Federal Reserve? That's a good 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 the consumers, or workers, are then spending money by shopping, dining out, or on clothing, and the economy is driven by these things ; they make the economy grow or heat up . There is more money in circulation when the economy is growing and keeping inflation in check is very important for the Federal Reserve. They can keep inflation in check and lower inflation by raising the short term interest rates, which cools the economy down , or they can raise inflation by lowering the short term rates, heating the economy up. As you can see , so a big factor is the jobs number, beneath the surface driving this .
The next time you are trying to prepare for a free forex training day or the next week , take a look at the fundamental information on the events calendar that will be released in the next day or week . If it's the first week within a month then you'll have the Non-Farm Payrolls report to look forward to on Friday of that first week 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 means higher short term interest rates that lead to currency strength . On the other hand , if there is a weaker than expected jobs report then this usually means lower short term interest rates that lead to currency weakness . It's not always so black and white , but knowledge of these general parameters will give you a leg up on your fellow trading competitors .
David F Dacosta - Is a private trader using technical analysis to do free forex training & futures trading. David makes specific trade recommendations for a small select group of traders. He uses drummond geometry to make his forecasts. Click Here for training materials and a free forex trading forecast.
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