News that affect the market

There is a range of important indicators which help indentify economic health of a country and its specific industries. These indicators move different world markets, and therefore on the days when these reports are published traders can monitor increased volatility.

If you’ll look at the economic calendar, you can note that every day there are dozens of new reports published. But just a few of them have a global impact, and one of them is Non Farm Payroll (USA). This statistical data shows how many new jobs were created, and as you know, the number of jobs is closely correlated with population wellbeing and their buying power. A lot of countries heavily depend on US market therefore overall world economy depends on the wellbeing of American people and their economy. That’s why usually when Non Farm Payroll statistics get released, markets become especially volatile.

To guess how much markets will change after news is published you should compare actual data with forecasted. If the difference is significant then markets would just go crazy. The same is true about GDP, interest rates, CPI and some other economic indicators.

Markets can significantly change the same instant news was released. There can be an extremely strong move up or down and it might seem endless. This is a nerve-racking experience especially for those who didn’t close their positions. If they don’t act immediately, they can lose a lot of money in seconds. To understand why news can prompt such a strong reaction, let’s discuss major economic indicators in details.

Inflation

There are different inflation indicators, but generally traders look at Consumer Price Index (CPI). It tells by how much on average prices were increased or decreased. When prices rise inflation rate grows and vice versa. These changes have a very strong impact on economy.

Growing inflation indicates that national currency becomes weaker. Therefore traders always get ready for this report to be published and get ready by reading forecasts prepared by major economists. Inflation is generally believed to be something negative. If it grows, we tend to think that economy is getting worse. But this isn’t always true. Sometimes Central Banks deliberately manipulate interest rates to stimulate inflation growth which will make their economy more attractive for external investors. And external investments would have positive impact on economy.

GDP

Gross Domestic Product is the overall price of all goods and services produced inside a certain country. GDP numbers are released every month, quarter and year. This indicator is used to determine how well a country lives and how stable is its economy. GDP growth is considered to be a good sign leading to national currency appreciation. When GDP decreases national currency becomes less valuable.

There’s obvious correlation between GDP and economy strength. When GDP grows that means more people work and earn money. As a result, demand for goods and services rises and economy develops. But when GDP decreases people start to live worse and they can’t spend as much as they used to. As a result, companies suffer from lower demand. What we know for sure is that bad GDP is an alarming sign.

Non Farm Payroll

This is one of the most awaited economic reports. Non Farm Payroll (NFP) is monitored by almost every binary options trader. It shows how many new jobs were created in various industries except farming. Calculations are performed every month, and data is published on first Friday of the following month. This is the time when investors can spot great trading opportunities.

When NFP numbers increase, that means there are more new jobs created. Since this indicator is calculated in the United States, positive NFP report released results in stronger US dollar. This is one of the ways to determine unemployment rate, and we all know that unemployment is bad.

It’s very important that traders stay informed of this type of news and possible market reaction. If you know how markets will behave after NFP data release, you will be able to see good trading opportunities and increase your chances of making profit.

Trade Balance

Export and import are two major economic factors. Trade balance shows the difference between them and can significantly change investors’ mood. If a country sells more to other countries than it buys from them, its national currency will strengthen.

The correlation between currency exchange rate and trade balance doesn’t seem obvious, but it is very strong. The amount of US dollars in the world is limited the same is true about any other currency. If USA exports goods then buyers of these goods should get dollars to make a payment. And since the amount of dollars is limited, increase in demand causes currency appreciation. But when import numbers increase, it has the opposite effect and national currency becomes weaker.

Durable Goods Orders

Goods which are intended to be used for three and more years are considered to be durable. If the amount of orders for such goods rises, that means additional work force will be involved in production. As a result, the number of new jobs increases and this makes economy stronger. Traders know possible effect Durable Goods Orders reports can have on markets and therefore get ready for its release and try to be careful with their forecasts.

After this report is published traders can earn a lot of money because right after the data goes public market volatility can rise significantly. But volatility isn’t just about good trading opportunities, it also means additional risk. If you make wrong analysis, you can easily lose your money.

All of the above mentioned economic factors are the part of fundamental analysis investors should be familiar with. Otherwise, they simply won’t be able to understand why markets change. Considering macroeconomic indicators is the key to doing thorough fundamental analysis. Without these data it’s impossible to forecast market behavior, and everyone knows that forecasting and planning are essential for trader’s success.

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