How to read economic releases

How to read economic releases

Economic releases play a very important role in financial markets. Aside from the fact that they move the markets in the short term, they help economists and fundamental analysts in determining the future direction of a financial product.


Economic releases are many, ranging from GDP data, to employment figure to Industry and services oriented numbers. At times, they also include extraordinary meetings and central bank decisions and discussions.


Some of the mentioned release are rather insignificant and only serve to help those writing research papers while others can make or break entire trends. For example, the monthly non-farm payroll reports out of the US, which includes the average hourly earnings and the unemployment rate, is one of the most significant releases and could lead to immediate and extended volatility.


There are a variety of calendars which can be used to stay updated with releases. The main difference is that some of them may have their own expected numbers for an economic figure.


Each economic release is associated with a forecasted number and the previous number. Those two elements help determine the potential effect of the soon-to-be released figure.


Let’s assume the following:


Unemployment rate out of the US

Previous figure: 5.4%

Forecasted figure: 5.2%

Current: ?


There are many scenarios possible in this case. If the release comes in at 5.2%, as expected, the reaction could be good for the Dollar temporarily but given that the 5.2% was already expected, traders are not very surprised by the figure and would eventually shrug it off. Nonetheless, it’s better than the previous one, creating a positive sentiment.


Now let’s assume a figure of 5.3%. In this case, it’s still an improvement over the previous but by a smaller margin while missing forecast in a negative way. In this case, a possible reaction could be negative initially but would improve given the monthly actual improvements.


A more extreme scenario would be a figure of 5.0%. In this case, the market is likely to see a surge in demand, boosted by beating the forecast and a major improvement over the previous figure.


Like previously explained, many scenarios are possible and it would all depend on how traders perceive it as well as what the current market conditions dictate. It’s never an exact science but could keep traders out of trouble when an economic release threatens to affect already in-market positions.


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