Indices & FX

23/09/2022

Employment Data
Economic growth is a guide for traders and investors around the world. Novice and professional traders focus on this data as it's very important for all market participants. It affects market movement and is used to measure economic growth and health as it will impact Retail Sales, Personal Consumption Expenditure, as well as the inflation rate and GDP of a country.

There are multiple employment data published every month, and they measure different things. They are sometimes confusing for traders and investors who don't know what the data is for and what things are anticipated by the market. In this article, we will look into some data that every market participant should focus on, and provide a brief explanation of the importance of such data.

NON-FARM PAYROLLS (the U. S. data as an example)
The first and foremost is NFP, especially NFP from the U.S. Nonfarm Payrolls shows the number of workers in the U.S., excluding farm workers and workers in other job classifications. This is measured by the Bureau of Labor Statistics (BLS), which surveys private and government entities throughout the U.S. about their payrolls. The BLS reports the non-farm payrolls to the public on a monthly basis through the closely followed "Employment Situation" report.

In addition to farm workers, the non-farm payrolls data also excludes some government workers, private households, proprietors, and non-profit employees. The report is released by the BLS on the first Friday of the month.

Understanding Non-farm Payrolls
The name non-farm payrolls indicate that farm workers are excluded, but there are several other categories that are not included in the data count. Non-farm employees account for approximately 80% of the U.S. business sectors contributing to gross domestic product (GDP). While this represents a majority of the U.S. labor force, there are some notable exclusions in addition to farm workers:

Government workers: Government is a key part of the monthly employment report, but some government workers are excluded. The government category counted in the data includes civil servants, but excludes military personnel and official employees appointed by the government. Employees of the Central Intelligence Agency (CIA), National Security Agency (NSA), National Imagery and Mapping Agency (NIMA), and the Defense Intelligence Agency (DIA) are also excluded from this monthly data.

Private households: Private household employees and domestic household workers are excluded from the data.

Proprietors: This includes sole business owners and self-employed workers who operate without registered business incorporation (e.g., do not have a limited liability corporation or partnership status).

Non-profit employees: the non-profit sector is not included in the non-farm payroll statistics even though this sector is quite large.

The monthly Employment Situation report is created from two surveys, the Household Survey and the Establishment Survey. The two separate reports are compiled together to form one comprehensive monthly report.

The Household Survey provides the unemployment rate report and details on employment demographics.

The Establishment Survey segment of the BLS's "Employment Situation" report is also known as the non-farm payrolls report (NFP), providing the headline number of new non-farm payroll jobs added within the national economy. Key components of the Establishment Survey include:

The number of total non-farm payrolls added by entities for the reporting month

Non-farm payroll additions by industry category: durable goods, non-durable goods, services, and government

Details of work hours

Details of average hourly earnings

ADP Non-Farm Payrolls is data that has the same basics but is compiled by the ADP (Automatic Data Processing), a global business outsourcing service provider. This data is released on Wednesdays, two days before the Bureau of Labor Statistics releases the NFP data.

U.S. Unemployment Rate
This data is the result of the Household Survey that is released at the same time with and as a part of the Employment Situation. The components of the data include:

Unemployment rate

Unemployment rate by gender

Unemployment rate by race

Unemployment rate by education

Unemployment rate by age

Reasons for unemployment

Employment data by types of alternative employment

Participation rate

The most monitored data are the unemployment rate and NFP from the U.S. But data from other countries and regions such as the U.K, European Union, Australia, Canada, and Japan also need to be considered as they affect certain markets. In addition to the key data discussed previously, there is the Unemployment Claim, submitted by unemployed individuals to request some cash benefit to the government of several countries that provide it, such as the U.S, the U.K, Australia, and Canada. Job Openings and Labor Turnover Survey from the Bureau of Labor Statistics can create market volatility when market participants and authorities such as FOMC or the Fed focus on employment data.

Reading Employment Situation Data
An increase in NFP and a decrease in the unemployment rate indicate that the economy is growing. Conversely, the decline in the employment sector is indicated by a decrease in NFP and an increase in the unemployment rate.

Many traders only watch for NFP but don't understand that both data should be read as opposites, especially beginners. The rise in the employment sector is good for the country's currency. For example, if NFP increases and the Unemployment Rate decreases, EUR/USD will decline as the USD grows stronger as the counter currency.

On the other hand, USD/JPY and USD/CAD might increase as USD is the base currency in these pairs. When the data is released, some traders do not know how to read it. Many novice traders misinterpret the USD strength when monitoring the price movement of a pair.

We hope this article can explain what is inside the important data anticipated by traders and investors every month, how to read them, dan most importantly their definitions, compositions, and functions. We will look into the Gross Domestic Products in the next article in the Economic Cycle series.

16/09/2022

Economic Cycles

Economic recession is one of the most reported events in media, and naturally it's a hot topic among traders. This is the kind of events that cause unnecessary anxiety in our everyday trading. In this article, we will talk about market or economic cycles to make wiser decisions or gain valuable insights, rather than consuming any news without proper understanding about what is happening in the economy and financial industry.

Financial market cycles have similar rythms and patterns, in which there are ups and downs. This article will take a deep look into economic condition of a country and other topics such as inflation and monetary policy, as well as economy data used as a reference by economic observers in predicting or providing their views about the economy in the future.



Economic Cycles Components

There are 4 stages in an economic cycle:

Expansion

Peak

Contraction, or known as Recession

Trough

To help us remember, let's consider these four stages are similar with four seasons. Expansion is similar to spring, where new lives begin after winter. Peak is like summer, where there is a rise in activity. It follows with Contraction, and we can compare it to fall. Finally, we come to winter, or Trough, where the animals go to hibernation and economic activities become slower.

Economic Cycle Timeframe

One cycle consists of 4 stages, and the average period of a cycle is 10 years, from the beginning to the end. Let's take a look into the history of the world economy. Since 1997 until now, there have been several big recessions. It started with economy crisis in Asia in 1997-1998, followed ten years later by global financial crisis in 2008. Economy observers had noted that the signs of the global economic crisis started with subprime mortgage crisis in 2006-2007.

In the modern economy, and since The Great Depression in 1929-1939, economic super cycles happen every 30 years in average. Traders understand it quite easily. It's like looking at market trends in different charts, hourly or daily. We can draw the similarity with different timeframes of economic cycle.

Economic Cycle Criteria

The problems with media and news are delays in information. It's not a big issue with people who don't need to anticipate market movement. But for investors and traders, it's very critical as they can't anticipate future condition or the next economy crisis without timely information. We will look into economic cycle criteria to help anticipate potential change in the market.

Expansion Criteria

Gross Domestic Product (GDP) growth at a rate of 2% to 3%

Inflation rate close to target (usually 2%-3%, US, Europe and UK target at 2%)

Unemployment rate is 4.5% to 6%

Stock and equity markets are bullish as indicators

Peak Criteria

Economic development is starting to slow down

Growth in Gross Domestic Product (GDP) is above 3%

Inflation rate is above 2%

Low and stable unemployment rate

Stock and equity markets as indicators are still bullish and may even continue to reach new highs



Contraction, or Recession, Criteria

Also known as recession

Gross Domestic Product (GDP) growth is below 2%

Unemployment rate is above 5% and continues to increase

Stock and equity markets as indicators is entering a Bearish market

Static/normal recession at least 6 months in GDP contraction

This metric is the 2nd consecutive quarterly GDP decline

No longer used in the US after the major global financial and economic crisis during the COVID-19 pandemic

For example, global financial crisis in 2007-2009 is also known as The Great Recession (Global Financial Crisis and Subprime Mortgage Crisis).

Economic recession is different with economic depression

The criteria by which economic recession becomes economic depression

Same as recession with additional conditions as follow:

GDP decrease by at least 10%

Unemployment rate is above 10% and continues to increase

Production rate drops significantly

Happens in longer period.



Trough Criteria

Contraction leads to increased demand as products are cheaper

Production output increases

The number of unemployed decreases

This is the beginning of a new economic cycle



Gross Domestic Product (GDP) growth is the main instrument to measure economic growth of a country and will always increase throughout the cycle. It's just one of many factors in economy management. There are several government institutions with greater authority in handling an economy. It will be discussed in the next article on the topic of Inflation and Monetary policy.

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26/08/2022

Getting To Know Candle Sticks

Candlesticks are part of the setup of the majority of modern traders, but unfortunately many traders do not understand or know that candlesticks can be explored to provide a fairly detailed view of the market.

Candlesticks or Candle Chart is a tool to measure market sentiment which was created by Munehisa Homma around 1755, not a trader but a rice trader!!! This method was created to measure the demand and supply of rice, besides that this method is also used to measure sentiment during changing seasons or during a war.

From the use of the Candlestick Homma then found that the rice futures market was strongly influenced by the emotions of market traders. He knew that traders tend to hold on to their positions as long as the market moves, in the modern context this is the same as holding trading positions, and releasing their positions when they lose confidence in market stability. This position reversal or reversal will be carried out quickly, causing short-term sentiment that is different from the original market view.



Homma also understands that what happens between the open and close of a period (Daily) in the rice futures market is important for technical interpretation, so he developed a process to track traders' confidence and identify trends in the market. These principles are the basis and foundation for making modern candlestick charts and are used today.

The use of Candlesticks is certainly commonplace for traders in Japan and the Asian region, There are still many western traders who tend to use bar charts, but over the last two decades Candlesticks have replaced Bar Charts as the main chart type and are most widely used by traders in financial markets. Unfortunately, 80% of traders who use candlesticks use this tool without understanding that this chart is actually classified as an indicator that is able to measure sentiment, demand and supply in the market.

Candlestick Composition



Similar to Bar Charts, Candlesticks are included in the OHLC (open high low close) with the open, close, high and low prices in a period. Body/Body/Body and Wick/Tail/Wick are what make up a candlestick pattern.

With this body and wick resembling a candle, it is also called a candlestick. Because many don't understand how to see candlesticks and their patterns, it's a shame that most traders who use these ignore patterns that are very useful in trading.

Candlestick Usage

As discussed earlier, the main purpose of observing candlesticks is to identify changing sentiment in the market through changing Supply and Demand. This concept is easy to understand and can provide early detection of possible changes in a trend. There are many methods of observing candlesticks, but the priority and must be learned by traders who want to understand how to use candlesticks is to study patterns or candlestick patterns. The most common pattern studied at the beginning is the reversal pattern (reversal Patterns) which indicates a POSSIBLE trend change but it must be remembered that this is NOT a certainty of a trend reversal. What makes candlesticks easy to understand and learn is that the names of candlestick patterns are easy to remember and are always associated with something positive and negative. There are so many candle patterns that exist, but for traders who want to learn candlesticks, these are some patterns that can be learned, because these are patterns that are often formed in the market and are widely understood and observed by both beginners and experienced traders.



Englufing patterns

The second candle covers the entirety of the first candle

Depending on the Momentum and time of formation of this pattern in the market, Engulfing Patterns can be a reversal pattern (reversal) or a continuation pattern in a trend.

There is a Bearish engulfing where the second candle is a bearish candle

Bullish Engulfing where the second candle is a bullish candle

This indicates a change in sentiment, where the seller or buyer can reverse a momentum in the market



Piercing Patterns

Almost similar to Engulfing but the second candle is at least able to pass half of the first candle but cannot cover the entire first candle.

Piercing patterns are usually considered as Reversal Patterns, therefore they usually only appear at the end of a trend.

Bearish Piercing only appears in markets that are experiencing an Uptrend

Bullish Piercing only appears in a market that is experiencing a Downtrend

This pattern indicates that there is resistance between buyers and sellers to take control in the market, of course because it cannot pass the first candle this pattern is categorized as an engulfing version which is slightly weaker but has a strong enough significance to changes in market sentiment.



Hammers

The simplest pattern but difficult for traders to understand

This pattern is very dependent on when the candlestick forms a hammer

To use and understand this pattern to the fullest, traders must be able to understand whether the market is in an uptrend or downtrend

Hammer's observations will depend on trend observations

This pattern is also unique because it does not prioritize a bullish or bearish candle but prioritizes the shape of a candle

If the Hammer Pattern appears in an uptrend then this has a negative connotation, which indicates more supply in the market



If the Hammer Pattern appears during a downtrend then this has a positive connotation and indicates there is more demand in the market



Morning Star



Bullish Reversal Pattern

Only valid in a down trend

Usually is the end of a down trend

The first candle must be bearish

The second candle can be DOJI (candle without body) or Hammer, it can be a bullish or bearish candle

The third candle goes up and closes at least 50% of the body of the first candle

It's actually a combination of Bullish Piercing and Hammer Patterns

Evening Star



Bearish Reversal Pattern

Valid only in uptrend / Uptrend

Usually is the end of an up trend

The first candle must be bullish

The second candle can be DOJI (candle without body) or Hammer, it can be a bullish or bearish candle

The third candle goes down and closes at least 50% of the body of the first candle

It's actually a combination of Bearish Piercing and Hammer Patterns

Are Candle Patterns Reliable?

Candle patterns are quite accurate in measuring and seeing changes in market sentiment, but candle patterns cannot be used alone, because the context of momentum and also Support and Resistance must be included in market analysis. The point is Candlestick Patterns are reliable but dangerous when using candlesticks by themselves. Candlestick patterns should be considered only as a warning of changes in the market, this can reduce overconfidence and assume every pattern is 100% accurate. Candlestick patterns because they require context of support and resistance as well as momentum make this must be used and combined with other indicators or strategies. Reversal patterns are most effective when near support or resistance levels that have been identified using methods.

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INDICES & FX helps in informing happenings on the forex market and happenings on countries economical, political activities which could be of importance when analysing the forex market. We are involved in the forex market directly or indirectly