Employment Report : Economic Reports
The employment report is probably the most important economic report fot the forex trader. I am very sure that the reader has come accross all those " How to Trade the Employment Report " forex gurus . I personally prefer the GNP economic report as it has more information but it only comes out quarterly.It is very important for the forex trader to know when it is released. For those that trade the employment report ,of course you don’t want to miss it. for pure forex technical traders like me, I wait for about 20 minutes after the report is out before I trade it. Other times I just wait until the next week after the market has digested the relevance of that particular economic report.
The Employment Report has two subparts : the unemployment rate and the payroll unemployment.
The unemployment rate is important, but markets do not react much to it unless it is very important or way beyond expectations. The issue with it is that it increases after the economy has peaked and begins to fall after the economy has begun it’s recovery, thus making it a lagging indicator.
Payroll employment is the measure of number of jobs in more than 500 industries except farming.The payroll report rises at the same time the economy is rising and falls at the same time the econmomy is falling making it a coincident indicator.
It is very important to distinguish between payroll unemployment and unemployment as the various markets react differently.
| if Payroll is Up | if Payroll is Down | if Unemployment is Up | if Unemployment is Down | |
|---|---|---|---|---|
|
Dollar
|
Up
|
Down
|
Down
|
Up
|
|
Bonds
|
Down
|
Up
|
Up
|
Down
|
|
Stocks
|
Up
|
Down
|
Down
|
Up
|
How Employment affects the dollar
Stocks favor a strong payroll report as it’s an indicator of a strengthening economy and favourable outlooks for shareholders who might expect more sales and possibly profits. However, if unemployment is up, this might be a sign of a waning economy and so stocks may fall.
Bonds will generally fall if payroll employment is stronger than expected. This may be a sign of a stronger economy which may lead to higher interest rates ,leading to lower bond prices. If unemployment is up ,this might lead to a possible recession meaning lower interest rates , and higher bond prices.
For the dollar currency trader, the same applies as with stocks. Essentially, if the economy is expanding, other nations will bid up the price of dollars to buy US goods and services. However if unemployment figures are up, this leads to lower interest rates and thus lower dollar prices as is case now.
Be very carefull which numbers you are following.
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