Economic Indicators For Currency Exchange Trading

Non Farm Payroll is an indicator of the employment rate and overall strength of the labor market in the US. It represents all business employees excluding employees of nonprofit organizations, general government and private household employees, accounting for about 80% of the workers who contribute to GDP.
The report also includes estimates on the average work week and weekly earnings of these employees. As a general indicator of the health of the economy, usually the dollar in foreign exchange trading is affected more the further from expectations the figure for Non Farm Payroll turns out to be. The general trend since 1990 has been increasing.
Usually, when NFP data is lower than expected, traders will begin to sell the greenback on the belief that it is weakening and of course, the opposite is true for unexpectedly high figures. NFP is released at 8:30am EST on the first Friday of every month and causes an average move of 124 pips in the Euro to Dollar exchange rate.
Federal Open Market Committee decisions generally indicate the overall strength of the US economy. The FOMC sets the discount rate, or federal funds rate, which heavily influences the Dollar exchange rate and subsequently the forex market. Interest rates are set higher to induce foreign investment, fighting inflation during times of prosperity and lowered to increase spending during recessions.
Increases in interest rates usually lead to a strengthening of the dollar, whilst a decrease usually precedes a fall. Traders following rate hikes usually buy the dollar, anticipating an increase in its value. For the past 15 years the federal funds rate has experienced a net decrease. There are eight scheduled FOMC meetings per year, each of which is usually followed by an average move of about 74 pips in the EUR/USD exchange rate.
Trade balance gauges the difference in value of the goods and services that the US imports and exports. It can also be considered the difference between national savings and national investment. A surplus exists if the exports exceed the imports, and a deficit exists if the opposite occurs, which is the current situation for the US.
The balance can be affected by a variety of factors, including exchange rates, prices of domestic goods, trade agreements or barriers and other trade regulations, for example, tariffs. The US has had a trade deficit since the 1970s and it’s continuously on the increase. This could be down to the fact that the greenback is used as a reserve currency amongst other factors such as globalisation. A deficit is considered a sign of US economic weakness and therefore may lead traders to sell USD. Trade balance is usually released near the middle of the second month after the reporting period and causes an average move of 64 pips in the Dollar to Euro exchange rate.
Retail sales measure the amount of goods sold by a sampling of stores and is meant to be representative of consumer activity and confidence in the economy. Since 1992 the US retail sales numbers have been steadily increasing. Generally forex traders respond positively to high US retail sales numbers and long the dollar, shorting it when the figure is lower than expected. Retail sales numbers are announced around the 11th of every month at 8:30am EST causing an average 44-pip movement in the Euro to Dollar rate.