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Employment Statistics and forex trading

Nick Goold

Employment statistics are important economic indicators that can provide valuable insight into the health of a country's economy. For a Forex trader, understanding employment statistics and their impact on interest rate policy and FX markets can help you make more informed trading decisions.

Employment statistics typically measure the number of people employed, the unemployment rate, and the average hourly or weekly earnings in a particular country. Government agencies like the Bureau of Labor Statistics in the United States, the Office for National Statistics in the United Kingdom, and Eurostat in the European Union publish these statistics regularly, usually once a month or every three months.

Effect on interest rates

Employment statistics can impact interest rate policy by providing clues about the strength of an economy. As a result, central banks often use employment data to help determine whether to raise or lower interest rates. For example, suppose employment data shows that the labor market is strong and unemployment is low. In that case, this may indicate that the economy is growing and that inflation could be a concern. In this case, a central bank may raise interest rates to prevent inflation from getting out of hand.

Forex Markets

The impact of employment statistics on FX markets can be significant, as they can affect the perceived strength of a currency. When employment data is better than expected, it can boost confidence in the economy and increase demand for the currency, driving up its value. On the other hand, when employment data is worse than expected, it can mean that the economy is weakening. This worsening can lead to less demand for the currency, which lowers its value.

FX traders closely watch the monthly release of non-farm payroll data, as it is considered a vital indicator of the health of the US economy and even the world economy at certain times. For example, in February 2021, the nonfarm payroll report showed a stronger-than-expected increase in jobs, which boosted the value of the US dollar against other major currencies.

Key employment statistics around the world

The key employment statistics in the US, Europe, Japan, and Australia are:

United States:

Nonfarm Payrolls: Measures the total number of paid US workers, excluding farm employees, government employees, and non-profit organization employees.

Unemployment Rate: Measures the percentage of the total labor force that is unemployed and actively seeking employment.

Average Hourly Earnings: Measures the average hourly wage of all US workers.

Europe:

Employment Change: Measures the change in the number of employed persons in the Eurozone.

Unemployment Rate: Measures the percentage of the total labor force that is unemployed and actively seeking employment.

Consumer Price Index: Measures the change in the price of goods and services in the Eurozone.

Japan:

Employment Change: Measures the change in the number of employed persons in Japan.

Unemployment Rate: Measures the percentage of the total labor force that is unemployed and actively seeking employment.

Tankan Survey: Measures the sentiment of Japanese companies regarding business conditions and employment.
Australia:

Employment Change: Measures the change in the number of employed persons in Australia.

Unemployment Rate: Measures the percentage of the total labor force that is unemployed and actively seeking employment.

Participation Rate: Measures the percentage of the population that is either employed or actively seeking employment.
These employment statistics are released regularly by government agencies and can provide valuable insight into the health of a country's economy. Monitoring these key indicators to make informed trading decisions is vital for a trader.

The release dates for employment statistics vary by country and by specific indicator. However, in general, most employment data is released monthly or quarterly.

For example, the Nonfarm Payrolls report is released on the first Friday of every month in the United States. At the same time, the Employment Situation Summary (which includes the unemployment rate and average hourly earnings) is also released on the first Friday of every month. 

It's important to know that it's common for employment data to be revised significantly after it's been released. As more data becomes available, initial data sets are often adjusted and changed later. As a trader, it's crucial to stay informed about the initial release of employment data and any subsequent revisions, as these can significantly impact the market and trading strategies.

Trade preparation

Preparation

Here are a few steps traders can take to prepare for employment data releases:

Check the release schedule: 

Make sure you are aware of when the employment data releases are scheduled for the countries whose currencies you are trading. You can find this information on economic calendars provided by financial news websites or brokers.

Research market expectations: 

It's essential to know what the market expects regarding employment data. You can find market expectations through various financial news sources, including news wires, financial websites, and research reports from investment banks.

Analyze technical indicators:

In addition to fundamental analysis, technical analysis can provide valuable insights ahead of employment data releases. Consider analyzing technical indicators for the currency pair you are trading, such as support and resistance levels, trend lines, and oscillators.

Have a trading plan: 

Based on your analysis of the employment data, have a trading plan in place that includes entry and exit points, stop-loss levels, and profit targets.

Sources

As for where to find good information on expectations in the market, there are many sources you can turn to:

Financial news websites: 

Websites like Reuters, Bloomberg, and CNBC offer real-time news and analysis of economic data releases.

Economic calendars: 

Many financial news websites and brokers offer economic calendars that show upcoming data releases and market expectations.

Investment banks and research firms: 

Large investment banks and research firms often publish reports that include expectations for economic data releases.

Social media: 

You can also follow financial analysts, traders, and news outlets on social media platforms like Twitter to get real-time updates and analysis of economic data releases.

Ultimately, the key to successful trading ahead of employment data releases is to be prepared, stay informed, and have a clear trading plan.