free download links about online stock trading, forex, futures, stock investing, market, trading systems
WHICH REPORTS ARE MORE IMPORTANT IN FOREX TRADING
Back to contents page

I want you to know that whether you are a beginner or an advanced trader, it is important to know what to look for and how certain reports may affect the price behavior of the markets. Figure 1.10 shows what I see as the major focuses of economic reports here in the United Statees and what is in my opinion the order of importance. My selection holds true in all business cycles. The number-one focus should always be to read and to listen to what the voting members of central banks are looking at and on what they are basing their decisions to adjust interest rates. That makes sense, right? So the releases of their FOMC meeting announcements are important, as well as the minutes of their last meeting. The minutes are released within two weeks of the last FOMC meeting. In Figure 1.10, I have two small branches from the FOMC meetings: One is the Beige book; heighten your awareness of this, as it is released two weeks prior to a Fed meeting. The other is the Federal Reserve districts business surveys; these reports will show the un derlying strength or weakness of everything from business credit condi tions to the health of the consumer debt to income ratios.

You and I want to watch the reports and speaking engagements of the voting members of the FOMC. Generally, they will give clues as to what their intentions are and what their concerns are. One series of reports is the Fed's Beige book, and the other reports are the individual Fed district business surveys, such as the Philadelphia Fed survey. Then we trickle down the flow chart reading from left to right and see the employment situation; in good times, we should see a low employment level with moderating wage costs. In hard times, we should see high unemployment rates. When times are good, as in the period through 2005 when the nation's unemployment level was under 5 percent, we need to be aware of ugly inflationary pres sures; so forex traders need to focus on these inflation reports, such as the Producer Price Index and the Consumer Price Index. After that, taking a look at the financial health of the consumers is key to determining the continued strength or weakness of the economy. After all, if they have no more spending cash or are maxed out on their credit cards, we can anticipate a downturn in the retail sector, right? If the consumer stops shopping for clothes, electronic products, home design products, cars, or appliances, which we consider durable goods, then that won't be good for the economy and the Fed would be expected to stop raising interest rates or to possibly lower rates.

FIGURE 1.10 Economic Report Reference Chart

Here is a great example of why we want to pay attention to Fed speak ers. When newly appointed Chairman Ben Bernanke took over, he had a private conversation with Maria Bartiromo, anchor of CNBC, one weekend. When she revealed his thoughts in an exclusive interview on national

TV, the markets responded in such a way that Bernanke will be more se lective in what he says and who he talks to at private functions! Once again, we need to follow the people who make the decisions, and we need to lis ten to and to read what drives their decision-making process for adjusting interest rates.

FOMC Meetings

The Federal Open Market Committee consists of the seven governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direc tion of monetary policy. Changes are now announced immediately after FOMC meetings. There are a few accompanying statements the Fed may make after it announces any adjustments in interest rates. One statement is if the economy is at risk for economic weakness, or the other is if the econ omy is at risk for inflationary pressures. And there is always a chance for a neutral stance.

Beige Book

The Beige book is a combination of economic conditions from each of the 12 Federal Reserve regional districts. Truthfully, the report is aptly named the Beige book due to the color of its cover. This report is released usually two weeks before the monetary policy meetings of the FOMC. This report on economic conditions is used at FOMC meetings, where the Fed sets in terest rate policy. These meetings occur roughly every six weeks. If the Beige book portrays an overheating economy or inflationary pressures, the Fed may be more inclined to raise interest rates in order to moderate the economic pace. Conversely, if the Beige book portrays economic difficul ties or recessionary conditions, the Fed may see the need to lower interest rates in order to stimulate activity.

EMPLOYMENT REPORTS

The unemployment rate is a strong indicator of a country's economic strength. When unemployment is high, the economy may be weak and its currency may fall in value. The opposite is true as well. Many economists look for answers to the question “What is a country's full employment ca pacity level?” That knowledge will give clues to the peak in productivity and economic output. That also helps determine a country's capital flows and is, therefore, good information for currency traders to follow for longer

term trend identification. The unemployment rate measures the number of unemployed as a percentage of the nation's workforce. Nonfarm payroll employment tallies the number of paid employees working part time and or full time in the nation's business and government sectors.

There are several components that are also included in the employ ment report. One is the average hourly work week; that figure reflects the number of hours worked in the nonfarm sector. Another component is the average hourly earnings; it shows the hourly rate that employees are re ceiving. There are two versions of this report. One is a weekly report that is released every Thursday morning; and the other, the more influential re port, is the monthly figure that is usually released on the first Friday of every month. The fear when we are at or near “full employment is that em ployers might have to pay overtime wages to their existing workforce and use higher wages to bring in new workers from the competitor. This action can raise labor costs because of a shortage of workers. This leads to wage inflation, which is bad news for the stock and the bond markets. Federal Reserve officials are always on the lookout for inflationary pressures. In August 2006, the monthly employment report showed a less-than-expected increase in new jobs. This gave a hint to traders that the Federal Reserve might halt its interest-rate-hiking campaign. That so-called campaign took the Fed funds rate from 1.0 percent to 5.25 percent with a record-setting 17 consecutive interest-rate adjustments. When the market thought the Fed was done due to the potentially weakening jobs market, the dollar fell sharply and foreign currencies exploded in value in short order. The British pound chart in Figure 1.11 shows a 15-minute time period, one of my fa vorite time periods to watch for trade signals. The bullish indicators, as rep resented by the triangles that are pointing up, generated buy signals before the report was released (the construction and theories behind this particular trading system will be discussed throughout this book) and would have given an extremely profitable trade. The explosive behavior of the market's reaction was due to the sentiment that the Fed would change its interest rate policy from a tightening mode to a neutral watch-and-review mode.

One other method I utilize is trading like or similar markets, which is often referred to as trading tandem market relationships. In a situation that reveals a major change in interest-rate policy, such as a surprise in the em ployment growth or a contraction in the United States , we should see the dollar move against the entire spectrum of currencies. Call it a second-di mension confirmation technique.

Figure 1.12 shows the euro currency. Utilizing the same time period as in Figure 1.11, a 15-minute chart, we have similar buy signals generated be fore the report. It was the internal technical condition of the market on not one but two “like” or tandem markets that signaled that a change might take place in the value of these currencies

British Pound Explodes on Employment Report

Euro/ U.S. Dollar (15-minute buy signals)

As the charts show, a major change in fact did take place; the euro rock eted to the upside, generating over a 170-PIP profit per position in less than one hour. If you examine the two charts closely, you can see that while they both generated buy signals, both were at or near their pivot point support levels; but the trend in the British pound before the report was in an upward direction and the trend in the euro was in a declining mode.

What is interesting about this observation is that some traders were bound to be selling prior to the report, possibly because they were unaware that a significant report was due out or that it was an important enough event to warrant attention or because they were not looking at the same specific technical techniques that we will be covering in this book.

Smarter trading The art of day trading Trading Chaos Sane Investing In An Insane World
Beat The Odds In Forex Trading Robert Kiyosaki - Rich Dad, Poor Dad
The Five Rules For Successful Stock Investing Joe DiNapoli - Trading with DiNapoli Levels
Alexander Elder - Trading for a living