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Top 5 Most Market Moving Indicators for

the US Dollar
Tuesday, 18 March 2008 22:25:41 GMT

Written by John Kicklighter, Currency Analyst


When it comes to the currency market, most traders will use either technical or
fundamental analysis or a combination of both to formulate their strategy,
however, even for the casual currency trader, news or event risk can have a
dramatic influence on the long and short-term price action of a currency pair. In
this report, we examine the 5 most market moving indicators for the US dollar
(we update this report annually) against the Euro. The reason for our focus on
the EUR/USD is its status as the most actively traded - and therefore benchmark
currency pair.
Economic Data is Important for Both Fundamental and Technical Traders

It is irrefutable that news or economic data can elicit a sharp reaction from currencies and
other financial markets. However not all economic data is created equal. The monthly Non
farm payrolls for example has had a far bigger impact on the US dollar than other perennial
top market movers like consumer prices. Indicators rarely keep their same level of influence
over a currency though; so it common to see major shifts in the top ranking from year to year.
For example, over the past year, the worst contraction in the US housing market in a quarter
century has led indicators like new and existing home sales to crowd out top releases from
previous years like ISM manufacturing. Also, what may create a lasting move in a currency
on a day to day basis could be different from what triggers a knee jerk reaction in the US
dollar. The top 5 most market moving indicators for the US dollar on a day to day basis are:

1. Non-Farm Payrolls
2. ISM Non-Manufacturing
3. Personal Spending
4. Inflation (Consumer Price Index)
5. Existing Home Sales

Unlike the other numbers, the non-farm payrolls report consistently topped the list of most
market moving indicators for the US dollar. As the US economy slowed in 2007 and into
2008, the stability of the labor market was closely watched by all traders and analysts
because of its broad ramifications for the overall economy.

The Volatile Short-Term

While many technical traders profess the long-term fundamentals are already represented in
price action, even the most ardent chart reader has witnessed the considerable short-term
impact fundamental releases have on the spot rate at some point. Looking at the statistics
from 2007, one noteworthy detail is clear: the short-term or knee-jerk reaction has steadily
intensified over the past few years. Looking beyond this broad change and to the indicators
that populate the Top Indicators list, half of the market movers from previous years were still
stoking volatility through 2007. Whats more, for the knee-jerk, 20-minute reaction, both the
stalwart NFP and FOMC rate decision have held the first and second slots respectively for
yet another year. Though always released on a Friday (where price action is naturally limited
as liquidity drains with the approach of the weekend), the NFP held off less inhibited
consumer spending, inflation, housing and interest rate indicators. Through 2007, the dollar
moved an average 61 points in the first 20 minutes after the labor report. This compares to a
57-point reaction through 2006.
While the knee-jerk reactions can be dramatic, its measurement also comes with some
downfalls. Many times, a sharp and quick response to a specific economic release can just
as quickly be retraced. However, this was not the case with many of the indicators that filled
out the top nine spots in the 60-minute list. The ability of these indicators to generate follow
through suggests they have a lasting influence on the US dollar and are not just open to a
quick adjustment to account for fundamental surprises. It is interesting to note that the top
four indicators of the 20-minute reaction list are the same as the top four on the hour-reaction
list. From there, the trade balance and ISM manufacturing reports, which were absent on
both the Daily and 20-minute charts, won notable spots.

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