Fundamental analysis: The labor market and its impact on the dynamics of the national currency. 1/2

Fundamental analysis includes a very extensive approach to the analysis of world markets, which includes many factors such as economic, political and geopolitical factors. At the same time, the analysis of economic factors remains fundamental and takes the lion’s share of fundamental analysis.

All the subtleties of macroeconomics in one article or a number of articles can not be placed, but we will try to highlight the main points that affect the dynamics of a particular currency. So, one of the pillars of the country’s economy is the labor market, which will be discussed in this article. Next, we will consider not less important aspects of the economy – inflation and GDP.

The impact of employment on other indicators of the economy

The labor market or employment is one of the main indicators of the growth of the economy of any country and, as a result, has a direct impact on other important factors of the economy. Therefore, it is impossible to increase GDP or consumer prices with a decline in employment. That is why even a slight change in employment is regarded by the market as a significant driver to the movement.

So, for example, the high rate of decline in unemployment has a positive impact on US GDP, and the slowdown in the decline in unemployment has a negative impact on GDP.

Fig. 1. US unemployment rate.

Fig. 2. US GDP growth rate (y/y)

Labor market and national currency

The dynamics of employment and currencies are not so pronounced because unemployment or the employment report is only part of the state of the economy, when the dynamics of a currency shows the general state of the economy to another currency (another economy). But even in this case, the publication of employment reports is perceived by the currency market roughly.

So, the ambiguous report on employment in the US for April caused an almost weekly decline in the US currency across the entire spectrum of the market.

Fig. 3. EUR/USD (D1) at the output of US employment data

Fig. 4. US dollar against the basket of world currencies D1 at the output of data on employment in the US

The employment report remains one of the most liquid news that is suitable for trading strategies of trading on the news. More details about the trading strategy on the news can be found in the article “Trade on the news! Let’s consider it in detail. “

In the next part, we’ll look at how to analyze the employment report and what to look for.

Anton Hanzenko