Specific fundamental data releases are more likely to cause large market movements. If the market is uncertain about the results of the release, the market will have a rapid fluctuation after the release, that is, the more unexpected the news, the greater the price movement after the release.
The most important fundamental releases should be unemployment reports and interest rate announcements, as well as a consumer price index, inflation level, and gross domestic product.
Data of slightly lower importance include money supply M2, fiscal situation, producer price index, retail sales, and national trade. We use the daily volatility value of data releases to infer their impact on the market and prepare for our news trading.
Many indicators have a strong influence in any period. Whether it was in 2004 or 2006, we can see that these indicators ranked in the top nine: non-farm employment, trade balance, gross domestic product, consumer price index, and other data.
However, the fastest-rising influence was the Supply Chain Management Association manufacturing index. There are several explanations for this: this data is released on the first working day of each month, it can serve as a leading indicator of non-farm employment data, and this data report includes two key components, which indicate the performance of other indicators to follow.
There are many indicators that traders think should be included in this table, but they are not. Industrial production index and Michigan University consumer confidence index are two typical examples, these indicators are often released with other indicators.
In the past years, at least one indicator was released with the industrial production index every month.
Therefore, the actual influence of the industrial production index is not as great as expected. The last reason for the change in data influence ranking is that the daily volatility of the euro against the dollar declined from June 2005 to the end of 2006. In 2004, the daily volatility of the euro against the dollar was 111 pips.
But in the next two years, this value dropped to 104 pips. Although this decline seems very small, it significantly affected the data market which should have had a large volatility.
In 2004, the release of non-farm employment data caused a 193-pips fluctuation, while in 2006, the Supply Chain Management Association manufacturing index, which ranked first, only caused a 130-pips daily volatility. This may be due to the smaller spread in 2006 than in 2004.
As the spread changes, the importance of US economic data also changes. Although technical analysis always dominates short-term trading in the forex market, the fundamental factors, as we have seen, have a huge impact on the exchange rate trend.
Some traders will choose to trade data market, while others will choose to trade range market. The previous research shows that the top nine data are our focus, rather than the usual assumption that non-farm employment and trade surplus are the most important. After all, the importance of data is constantly changing.