The US Non-Farm payroll report is released on the first Friday of every new month . It is released by the US Bureau of Labor and Statistics or (BLS) and what it quantitatively measures , is the number of brand new jobs, excluding farming, created by the economy in the US the previous month. It is of such importance because it reflects the overall health of the US economy and thus the global economy . After all , in the world, the US economy happens to be the largest and the single largest component that drives the US economy is consumer spending ; this actually totals at least 70% !  This means, in forex trading, because a country’s interest rates is the number one factor affecting the strength or weakness of its currency , you must look at the rates and what is driving them; or the US Federal Reserve’s interest rate policy . Probably the most important data for the Fed to use is this job report to set short term interest rates and because of this, this report can and usually does , can lead to market volatility.
Why does this report have anything to do with the short term interest rates set by the Federal Reserve? A wonderful question! If the jobs report comes out strong this means that many people have jobs and there is high resource utilization. This also means that companies are employing workers and the consumers, or workers, are then spending money by shopping, dining out, or on clothing, and all of these things drive the economy ; they grow the economy or heat up the economy . When the economy is growing, this means that there is more money circulating and it is important for the Federal Reserve to keep inflation in check . They can keep inflation in check and lower inflation by raising the short term interest rates, which cools the economy down , or they heat up the economy by lowering the short term rates to help raise inflation . As you can see , so the job number is a huge factor , driving all of this beneath the surface .
The next time you are trying to prepare for a forex trading day or the next week , remember to take a look at the events calendar for the fundamental information that is scheduled to be released that upcoming day or week . If it’s the first week within a month then on the Friday of that first week you’ll have the Non-Farm Payroll report coming out since that’s always when it’s released . If you’re planning to take advantage of market volatility that occurs when this jobs report is released, simply keep the following formula in mind : If the jobs numbers are stronger than expected this usually means a stronger economy which will lead to a strengthening of the currency because short term interest rates go higher. Oppositely, if the jobs report comes out weaker than expected then this usually means lower short term interest rates that lead to currency weakness . It doesn’t always happen this cut and dried, but you can have a leg up on competitors with knowledge of these general parameters .

I would argue that the US Dollar is simply benefiting right now because of Euro weakness and Euro weakness only . Consumer spending in the US economy has picked up steam only because for some time the rates have been near 0% from the Federal Reserve . What will happen when the Fed is forced to raise rates ? Will the US economy be able to withstand that kind of head-wind ? More than likely, no. You have to keep in mind that there is more spending right now by consumers because many consumers are simply walking away from other payments, such as mortgage, auto, and credit card payments. This leaves the consumer with extra income that they otherwise would not have so they’re able to spend more on other items like dinner out, new clothing, and the newest technology items. Here we go with the punch-drunk consumer once again . The last Federal Reserve boom that was inflated was not sustainable and again, it won’t be sustainable. In the next several years, default or inflation are the US Dollar’s only options and both of the options will lead to disaster.

When doing forex trading the goal is to make some money. There is no bias . We want a profit from the foresight we have. Thus, the answer to the second question is that the Euro is over sold and will hit a bottom at some point . Probably around 1.2300-2400 . In reality, do you think that the world’s 3rd largest economy, Germany , will allow the currency to fail? Probably not. More than likely they won’t. This happens to be why they are not printing even more Euros and helping Greece bail themselves out. The problems in Greece will cause the Euro to become even more sound as a currency. Investors around the world will know that there is safety in the Euro because when they face problems they will deal with a loss in the short term to preserve their health in the long term . Thus , their economy may be having problems, but all of this will make their monetary unit better . The opposite is true in the United States situation . Money is being printed to avoid short term problems , but this leads to problems with the health of our economy and the US Dollar.
After looking at all that , we are close to the point where you’ll get the Euro for a great bargain that you should take advantage of in your own forex trading. Not only for the reasons we’ve talked about , but market psychology tells you this as well . The professionals buy when there is a free fall just as the average person is catching wind of the crisis and comes in off the street to go short the move that has already happened . This pattern has happened many, many times , and as long as limbic systems are part of human physiology it will continue to occur .

While the questions we just mentioned are enough to start up a multi volume response, we’ll focus on the basics for the sake of clarity and simplicity in this article . The easiest way to get comfortable within this world of FX trading is to simply go with an account with a brokerage specializing in forex trading . What broker should you choose ? That is a topic that is better left for another article. Before depositing money, just be sure to do some due diligence!

When your Forex Trading is working and you are getting started , you need to learn more about what you are involved in . With our example, we’re suggesting that because you started with a brokerage account at a broker who specializes in this area , you’ll begin by trading cash or spot contracts. Without making this complicated , all this means is that you are trading the current price as it sits in the open, global market at that very second . If 1.3200 is what you see the Eur/Usd pair is trading on the screen then Euros can be sold against US Dollars at this rate or at this rate you can purchase US Dollars and sell Euros . There is a small spread built into that price you’re seeing and when you take the trade this will be the cost of entry. Try finding a broker that only has a spread of 2-3 pips and no more.

Because it can be challenging to speculate , even for the pros like me , let’s say you want to in the United States have the goal of hedging your stock portfolio . Since your stock portfolio is denominated in US Dollars you may make money if your stocks go up in value in US Dollar terms but your gains can be cancelled if the US Dollar weakens. This aspect of your portfolio is what you want to hedge and in the brokerage account you have decided you want to buy Euros against US Dollars. This way as your stock portfolio is suffering when the US Dollar weakens against the Euro , the downside risk is hedged because of the gains you get by buying the Euros .

The above is probably one of the easiest and most basic ways of adding a forex trading component on to your portfolio. Other articles in the future will discuss more about global market speculation methods that are more advanced, but this should serve as a good starting place .