How to Read and Interpret Data

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Video Transcription

Welcome to the third lesson of the News Trading and 60-seconds Option module. In this lesson, we’re going to teach you how to read the data that is being released and how to trade accordingly.

Let’s start with the consumer price index. Normally, a higher than expected reading is bullish for the currency affected. In all of the cases that we’re going to go through, we’re going to assume that the data that is being released is affecting the US dollar and we get a higher than expected reading. Sometimes a higher than expected reading will be bullish for the currency, and sometimes it will be bearish. Let’s continue.

Now, in the example of the consumer price index, a higher than expected reading is bullish for the currency. So, this will be the expected moves on the major currency pairs: a drop on the euro/US dollar and the Aussie/US dollar and a rally on the US dollar/Canadian dollar and the US dollar/Japanese yen. Why? Because if we get a good reading or good data for the US dollar, that will appreciate the US dollar and bring the price of any currency against the dollar down, and the price of the dollar against another currency up.

Let’s continue with the retail sales. Since this is the most used measure of consumer spending, a higher than expected reading is bullish for the currency affected. If we take the same example of the US dollar and we assume that we got a better than expected reading, which is a higher than expected reading in this case, the expected moves of the major currency pairs would be a drop on the euro/dollar, on the Aussie dollar and a rally on the US dollar/Canadian dollar and the US dollar/Japanese yen.

Remember that when we get good news for the US dollar, this will bring the price of the euro dollar, or the, price of any currency against the dollar down, because of the dollar appreciation and of course, the price of the US dollar against another currency up because of the same US dollar appreciation.

Let’s move on to the unemployment rate. Remember that in all the cases we’re looking at, we’re assuming that we’re getting a higher than expected reading that and we’re assuming that we’re dealing with an event that has an impact on the US dollar. So, if we are looking at the unemployment rate, a higher than expected number is bearish for the currency affected. In this case, the US dollar.

Why? Because we already said that a higher unemployment rate means we have less new jobs, which means that consumers have less money to spend, which can be seen as a weakened economy. So, the expected moves on the major currency pairs would be a rally on the euro/US dollar and the Aussie/US dollar and a dip of the US dollar/Canadian dollar and US dollar/Japanese yen.

This is an opposite case because even though we have a higher than expected reading in the employment rate case, a higher than expected reading is bearish, or bad for the US dollar, which means that the US dollar will get depreciated and it will bring the price of any currency against the dollar up and the price of the dollar against any other currency down.

If we continue with the consumer sentiment index, remember, that this tells us how the average consumer feels about their financial situation and overall economy. So, a higher than expected reading is bullish for the currency affected. In the case of the US dollar, we have a depreciation or a dip on the euro/US dollar and Aussie/US dollar, and of course, a rally of the US dollar/Canadian dollar and the US dollar/Japanese yen.

We’re going through every single one of the examples of high-impact events that we saw on the previous lesson because we want you to understand how higher than expected readings, or a lower than expected reading will affect a currency pair, so you can position yourself accordingly and be on the right side of the trade.

The GDP is the barometer with which we measure the overall economic health of a country. So, a higher than expected reading is bullish for the currency affected. In the case of the US dollar, it will bring the price of the euro/US dollar and the Aussie/US dollar down and the price of the US dollar/Canadian dollar and the US dollar/Japanese yen up.

If we continue with the trade balance, remember than when more goods and services are exported than imported, an economy is healthier. So, a higher than expected reading is bullish for the currency affected. In the case of the US dollar, if we have a higher than expected reading, which is a better than expected reading, we would have a short-term appreciation of the US dollar, due to the bull pressure that the release of this data will have on the US dollar. So we will have a dip on the price of the euro/US dollar and Aussie/US dollar and a rally on the US dollar/Canadian dollar and US dollar/Japanese yen.

When we’re taking about the initial jobless claims, a higher than expected number is bearish for the currency affected, because when we have a higher number of initial jobless claims, it means that we have a higher number of people that are claiming unemployment. So, in the example of the US dollar — and if we get a higher than expected reading, which is a worse than expected result — the US dollar will be depreciated on the short-term due to the bear pressure that will be released by this data. So, the euro/US dollar will move up as well as the Aussi/US dollar, and the US dollar/Canadian dollar will move down, as well as the US dollar/Japanese yen.

Then the interest rate cut or the decision to maintain it the same. The Central Bank manages the interest rate environment through monetary policy. So, an interest rate cut generally means that the economy has fallen into recession. This is because a low interest rate encourages people to take more loans, so they can have more money, so they can spend more, thus move the economy around.

In the case of the US dollar or any other currency, an interest rate cut is very bearish. We would have an immediate rally on the euro/US dollar and the Aussie/US dollar and an immediate dip on the US dollar/Canadian dollar and the US dollar/Japanese yen.

And finally, the non-farm payrolls. Remember that more jobs means more money to spend, which translates to a healthier, more stable economy. So, a higher than expected reading of the non-farm payrolls is bullish for the currency affected, in this case the US dollar.

And when the NGP’s come out you have to pay attention because you have to be very quick because the market moves extremely fast, but the euro/US dollar will drop if you have a higher than expected number, as well as the Aussie/US dollar and the US dollar/Canadian dollar and the US dollar/Japanese yen will move up.

So, this is the end of this lesson and on the next lesson we will teach you how to set up everything and the actually strategy to trade these high- impact events.

Adam

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