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US Economic Indicators

It is important to point out that since 90% of all currency trades are pitted against the U.S. dollar, currency movements in general are naturally most sensitive to U.S. economic releases. Many technical traders argue that long-term fundamentals are already represented in price action, but even the most ardent chart reader has witnessed the considerable short-term impact of fundamental releases. 

Kathy Lien, in an article entitled "What moves the Currency Markets in the Short Term," conducts her own study of the EUR/USD range following economic releases for 2004 (table copied below):

Economic Report First 20 Min:
Avg Rng (Pips)
Total Daily Rng:
Avg Rng (Pips)
Nonfarm Payrolls
124
193
FOMC Decisions
74
140
Trade Balance
64
129
Inflation (CPI)
44
123
Retail Sales
43
125
GDP
43
no
Current Account
43
127
Durable Goods
39
126
TIC Data
33
132

Based on her study, Kathy concluded the that the most significant movements in the dollar (against the euro) occurred in the first 20 minutes following an economic release, and that nonfarm payrolls is the most important news release. Towards the end of the article she indicates that the knowledge of the magnitude and duration of moves following news releases can help traders properly weigh their positions, depending on their trading style. Breakout traders, for instance, can increase their positions prior data that carries the largest average range, such as the Non-farm Payroll (NFP) event, particularly if the market had been consolidating. Range traders, in contrast, should stand on the sidelines on that particular day and wait for prices to settle. They would be more keen to trade off the GDP release because of its relatively smaller move,  a third the pip size to move following the NFP event, and because its 20 minute reaction ranking is higher than its daily ranking.

I would add that knowing the magnitude and duration is helpful, but deciphering the significance of the data quickly enough as it pertains to the direction of the move before the market has already shot beyond your reach, is still a tricky conundrum. Your brain and hand have to digest and react to the news in microseconds. A young, alert person with a sharp mind and fast reflexes can enter a trade within a second or two. But the market probably shot up within the first second after the release, causing that fast trader to lose out on a good percent of the move. Ideally, you would have had your strategy regarding the news event pre-programmed within an EA, so that if the NFP actual number is 0.2 greater / less than forecast, you would go long or short the US Dollar. This news scalper EA would trump the human in reaction time, perhaps entering into the trade within the microseconds needed. However, even if you could program the best news scalper EA, it might only work on a demo account where you can expect immediate execution. Since 2007, most brokers have added a bit of execution delay (1-10 seconds) on any orders following a news event, causing severe slippage to most real accounts.  

Another point in her article, Kathy introduces an important caveat that the significance of economic data releases changes with time. She cites a research paper dated 1992 that indicates that Trade Balance was the number one market-moving U.S release on a 20-minute basis, while Non-Farm Payrolls (and unemployment data) was third. Then, in 1999, unemployment took the top place while trade balance fell to fourth, and by 2004 trade balance and inflation reports switched places, with trade balance coming in third place. She provides a table to show the musical chairs taking place amongst the indicators over time, and I have reformatted the table to take into account her 2004 findings (rankings based on reaction minutes after data release):


1992 1997 2004
1
Trade Balance Unemployment Unemployment
2
Interest Rates Interest Rates Trade Balance
3
Unemployment Inflation Inflation
4
Inflation Trade Balance Retail Sales
5 GDP GDP GDP

Thus, indicators rarely keep their level of influence over a currency, and it is common to see major shifts in the top ranking from year to year.

Today, eight years after Kathy wrote her article, other economic shifts have taken place, with perhaps the greatest ones being the shift in the importance of housing stats. Recently, with the popping of the housing bubble and its dramatic contraction, new economic indicators like existing home sales has begun to crowd out top releases from previous years. To date no one has updated Kathy's research to reflect the current environment. I would imagine that many of the top reports would have retained their current spot, but that housing data would have been pusing its way up. Though I do not have the time to test my hypothesis, if I were to create a table of today's top economic reports for the US Dollar, it would look like this (note: I am open to suggestion and amendment about the specific ranking): 


2012
1
Nonfarm Payrolls
2
Trade Balance
3
Inflation
4
Retail Sales
5 ISM Non-Manufacturing
6 Personal Spending
7 Existing Home Sales
8 GDP
9 Current Account
10 Durable Goods
11 TIC Data
12 Industrial Production

All the above economic indicators are important gauges for the strength of the US Dollar, and though their relative importance will shift with the changing economic landscape, it is a good idea to treat all of them seriously. I would guess that Non-farm payrolls keeps its 10 year top spot because it is the most powerful gauge of the US economy. As the US economy slowed in 2007-2010, the stability of the labor market was closely watched by all traders because of its implications for the entire economy. As a leading indicator for the consumer sector (for confidence and spending), business health (with investment in labor) and interest rates (through spending and inflation), the payroll number can be viewed as a relatively objective gauge of the general health of the economy. Trade balance has moved back into the top five slot because when the GDP cannot be helped by consumer spending or government spending, then all that is left is the balance of trade

The ability of these indicators to generate follow through suggests they have a lasting influence on the US dollar and are not just open to a quick adjustment to account for fundamental surprises. For instance, trade balance and ISM manufacturing reports (though they might not account for the quick moves on the daily and 20 minute charts) do have the lasting impact on the dollar. Another interesting observation is the ISM service's (non-manufacturing) presence within the top five. It has entered into the higher ranks due to fears of a US recession. Such concerns could keep this indicator near the top spot. Finally, the personal spending indicator unexpected rise is because it is tied in to the health of the broader economy, and it comes on the same day as the ISM factory release.

The market is highly sensitive to surprise releases from many of the more fundamentally crucial economic releases. What's more, the cooler response to scheduled indicators over the longer term will not last. Interest in fundamentals historically goes through peaks and troughs depending on the presence of exogenous event risk. As risk in credit and other markets tempers, market participants will be more willing to take on speculative risk and respond to the ever evolving fundamental docket.

To give you a better idea of the indicators themselves, their level of relevance, what they mean, source, release time, refer to the table below. 

Economic Indicator Relevance What Source Release Time Revisions
Employment
Very High
Are jobs being created? It has great economic and political significance
Bureau of Labor Statistics
8:30 am EST, first Friday of each month
Can be major. Revisions often go back two months with each release
Internat
Trade in Goods & Services
Medium to high Report on U.S. exports and imports of goods and services Census Bureau
8:30 am EST, data released second week, refers to 2 months earlier
Revisions that go back several months, change is small
Consumer Price Index Very High Most popular measure of price inflation Bureau of Labor Statistics
8:30 am EST, released 2nd and 3rd week following covered month.
None.
Retail Sales High
First report of the month on consumer spending, can have big surprises
Census Bureau
8:30 am EST, 2 weeks after month ends, monthly
Can be huge. Each release contains broad revisions of the two prior months. Annual benchmark changes are released in March and can go back 3 years.
Gross Domestic Product Medium to high Report on health of economy, GDP measures how fast or slow the economy is growing Bureau of Economic Analysis, Commerce Department
8:30 am EST, advanced estimates each quarter, final week of Jan, Apr, Oct, 2 rounds of revisions follow, each a month apart
Monthly revisions are moderate, though can on occasion be substantial
Current Account Medium to high Broadest accounting of America's trade and investment relationship with rest of world Bureau of Economic Analysis
8:30 am EST, released 2 half months after referenced quarter
Moderate
Durable Goods Orders High Key indicator of future manufacturer
activity
Census Bureua 8:30 am EST,3-4 weeks after end of reporting month, monthly
Can be major, and cover 2 preceding months.  
TIC Data Medium to High Tell us the value of the U.S. debt and securities foreign investors are buying compared to the value of the foreign debt and securities U.S. investors are buying. US Treasury
9:00 AM (EST); monthly, in the second month following the reporting month Data are subject to revisions for 24 months following release  
Industrial Production Medium Records U.S industry's output and it spare capacity Federal Reserve Board
9:15 am EST, released around the 15th of month, reporting on previous
Modest changes made over subsequent 3 months
ISM Manufact
Survey
Very High
First monthly report on the economy, focus on manufacturers Institute for Supply Management
10:00 am EST, first business day after reporting month
None
Personal Income and Spending
Medium to high
Records personal income, spending, and saving
Department of Commerce
8:30 am EST, monthly
Data undergoes revisions for the new several months, changes are modest
Consumer Confidence Index Medium (can be high at turning points) Examines how consumers feel about jobs, economy, and spending The Conference Board
10:00 am EST, last Thursday of month being sureyed
Minor Revisions
Weekly Claims (UI)
High
Tracks new filings for UI benefits
Department of Labor
8:30 am EST, every Thursday, weekly
Minor changes
Productivity and Costs Medium Measures changes in the efficiency of workers who produce goods Census Bureau
8:30 am EST, five weeks following the end of quarter (quarterly)
Revisions can be substantial. 
Survey of Consumer Sentiment Medium (can be high at turning points) Near-real-time assessment of consumer attitudes on business climate, personal finance, and shopping Survey Research Center, University of Michigan
9:45 am EST, second Friday of each month, final on last Friday
Low, prelim numbers mid-month are revised two weeks later. 
Housing Starts & Building Permits Medium Records the number of new homes being built and permits for future construction Census Bureau
8:30 am EST, released 2-3 weeks after month covered
Modest Revisions
Existing Home Sales Medium to high Measures monthly sales of previously owned single-family homes National Association of Realtors
10:00 am EST, four weeks after reporting month ends
Modest revisions.
New Home Sales Medium Tracks the sales of new single family homes. Census Bureau
10:00 am EST, four weeks after reporting month ends
Frequent revisions, can cover preceding 3 months. 
Weekly Mortgage Applications Survey and National Delinquency Survey Medium Tracks the number of Americans applying for a mortgage to buy or refinance a home.  Mortgage Bankers Association
7:00 am EST,every wed, covering previous week.
Few.
Producer Price Index Very High Measures the change in prices paid by businesses Bureau of Labor Statistics
8:30 am EST, announced 2 weeks after reporting month.
Subject to 1 revision published 4 months later. 
Employment Cost Index Medium to High Most thorough measure of labor costs Bureau of Labor Statistics
8:30 am EST, released last Thursday of Apr, Jul, Oct, Jan Revisions announced annually, changes going back several years.

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