Early in the morning on the first Friday of every month the U.S. Bureau of Labor Statistics releases the famous Non-Farm Payroll Report, which is the most awaited piece of economic news market traders of all kinds look forward to. Non-Farm payrolls is the most reliable of the economic indicators and gives us information about the number of jobs added or lost in the U.S. economy over the past thirty days exclusive of jobs in the agricultural sector, and is eagerly awaited by so many investors, because it's responsible for many of the largest single-day price swings in history, and much money can be quickly earned when markets are moving so much.
If the number of new jobs created by the domestic Economy is larger than expected by market participants, people can conclude that the economy is "overheating", and they can sell the dollar against other world currencies because they believe that a growing economy will put upward upward pressure on inflation, which is bad for the dollar. If the number of new jobs turns out to be less than expected, traders may also sell the dollar, because they might expect the Federal Reserve to lower interest rates to stimulate the economy. Foreign currency history shows us that in the foreign exchange market pro forex traders can react to the same news differently on different days, so when you've got economic news that has the potential to move the market so much it's easy to see why it's why so much volatility is inherent to the forex market.
Outside the agricultural sector, the ADP figure is another factor that causes changes in the value of a currency versus another. There are so many factors that market professionals that make a living trading in forex must be aware at all times what news is breaking. Here is a list of these items you can begin to prepare for:
1) interest rates. Money tends to flow to locations on the map, which gives the best "real return". The real return can be defined as risk-free rate minus inflation. The U.S. risk-free rate is generally accepted as the return on U.S. Treasury securities. The Inflation rate is what is published by the same Bureau of Labor Statistics. When you subtract the prevailing inflation rate from the U.S. Treasury yield, you arrive at the real rate of return for the domestic economy. If that trend rises then you'd expect the dollar to also to rise.
2) current account deficits. Current account measures the balance of trade between a country and its normal trading partners. This will reflect the flow of money between these nations used to pay for imports and exports. If a country exports more goods than it imports it will run a current account surplus, and it begins to accumulate some excess reserves of its counter-party Foreign currency. The greater the accumulation the more of that foreign currency will be in circulation, and according to the laws of supply and demand, when you increase the supply of something, the price goes down.
3) debt. In search of a satisfied electorate many governments will engage in deficit spending to finance public sector works such as roads, bridges, schools and power stations. These projects have a tendency to stimulate the domestic economy, but too much deficit spending can create a perception that inflation is going up in the minds of forex traders. Nations with large public debts aren't very attractive to investors because they know that the temptation on the part of the government to repay these debts with inflated printed currency is always present.
While exchange rates are determined by many complex factors that are difficult for the most experienced professional Forex traders to track, good forex trading practice demands that students new to the game at least make an attempt to gain an understanding of the many factors that influence money exchange rate appreciation and depreciation.
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