The first week of the month sparks the trader’s most-watched event in the Forex market: the release of the Employment Report. Experienced and novice traders alike anticipate the release of this economic report on the first Friday of every month. It’s the most important economic report each month. It moves the currencies markets more than any other economic statistic.
The Employment Report also has political significance because President Obama and his team can graciously accept the reward for a strong jobs report or attempt to frantically explain a weak employment report (and weak economy) since the economic stimulus package that pumped more than $1 trillion into the economy. Last Friday showed that job losses hit a 26-year low in October.
For those traders who are unclear about what the employment report is, here is a brief summary. It reports on the number of jobs created (or jobs lost) in the previous month.
The Important Jobs Report
The Employment Report is watched by people around the world for three reasons:
- The employment report is very timely as it is released just a week after the end of the previous month.
- The jobs report is very detailed about the job market and household earning. This information can provide an excellent forecast for future economic activity in the U.S.
- Employment is an issue that is important to everyone, even more so with the economic recession the country is currently experiencing.
What kind of impact can the Employment report have on currencies? Let’s focus on the position of the U.S. Dollar (USD). A strong report can drive interest rates higher, which can make the Greenback more attractive to investors. Even if this is temporary, the USD can make a dramatic spike in the wake of a strong employment report.
However, a weak report can lessen the demand for the U.S. Dollar because it could mean trouble for the stock market and put downward pressure on interest rates. In short, a weak report makes the Dollar less interesting to investors. Whether the report is strong or weak, the financial markets, particularly Forex, are very affected by this report.
The week before the release of this report is one of the most volatile of the month.
Other Economic Reports
Other economic statistics are also released in the first week of the month.
Manufacturing Data
Manufacturing is very important. Although it does not have the impact of the employment figures and manufacturing makes up only 12 percent of GDP, the report is one of the most-watched reports in the country.
The Institute for Supply Management (or the ISM) is the most respected organization analyzing the manufacturing sector. The ISM Manufacturing Survey is particularly important because it is the first report released every month. In fact, it is released on the first business day of the month.
Many analysts, traders, and economists study this economic report because it provides critical information about whether the economy is expanding or contracting. If the number reported is above 50 percent, then there is economic expansion. If manufacturing falls below this critical number, then there is economic recession.
A number above 55 percent is discouraged because the economy could suffer high inflation.
Services Information
The services industry also releses an economic report in the first week of the month, called the services survey. In the past, this report was overlooked by most traders and analysts even though the services sector makes up 78 percent of GDP in the United States. However, in the last decade, the Services Survey has started to receive more respect.
Busy Forex Week
The first week of the month is a busy week in the Forex market. However, Forex is not unique in this respect. The stock market is similarly affected. Manufacturing statistics, employment data, and services information move the US Dollar (USD), the Euro, and many other currencies. Many experienced traders avoid the market in this first week because of the high level of volatility. Others dive right in and take advantage of the large price movements.
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