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How to trade the U.S. Dollar - Profit on major releases

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Trading the U.S. Dollar
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Important economic reports

A few economic reports have significant impact on central banks’ decisions regarding monetary policies. Those decisions will usually produce swings in the U.S. dollar value against other major currencies. If you learn to read the figures, you might have a clue what the Fed will do next regarding the interest rates, and thus make some profit on the forex market.

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Consumer Price Index (CPI)

Forex traders closely follow the CPI report as it is a broad measure of inflation, and the CPI figure might affect the Fed’s decisions regarding interest rates. Generally, the Fed uses interest rates as an instrument to control inflation.

Let’s say the target inflation rate is 2.0% annually, if inflation goes above the target, the Fed may decide to increase the interest rates in order to cool down spending. The higher interest rates will increase U.S. dollar demand and the greenback will strengthen against other currencies.

If the inflation rate is below the target, the central bank might cut interest rates to prompt spending. The lower interest rates will make the U.S. dollar less desirable.

Nonfarm Payrolls (NFP)

The nonfarm payroll is an important economic indicator, which shows the overall health of the US economy. It accounts for approximately 80% of the workers who produce the entire GDP of the United States. Forex traders follow the NFP numbers to see jobs added or jobs lost each month.

When more jobs are added at a healthy pace, interest rates may move higher and the U.S. dollar demand will increase. In the opposite scenario, fewer jobs may result in U.S. dollar sell-off.

How to make profit

I bet you have heard many forex gurus saying that fundamentals are less important and you should focus on price action or some magic indicator. In some case that might be true, but when it comes to interest rate decisions, you better pay attention. The Fed’s decisions will always have an impact on the U.S. dollar.

If you dig enough, you can read about rumors concerning the next Fed’s meeting and thus put yourself in a better position. Forex trading is not all about conspiracies, and sometimes it makes sense to learn how the economy works.

In this article, I have listed only two major economic reports that might affect the U.S. dollar. You need to be aware that there are other reports, such as GDP, Manufacturing PMI and Retail Sales, which also might have a direct impact on the greenback value.

If you want to be adequate in the forex market, you need to filter out the data important for you. Of course, the value of the dollar is affected not only by economic releases, but also by political events, hurricanes and Donald Trump’s tweets.


Toni H.'s picture

Disclaimer: This article contains a general overview for some economic reports that might affect the U.S. dollar value, and it is not financial advice in any way. Readers should not treat any opinion expressed by the author as a specific inducement to make a particular trade or follow a particular strategy, only as an expression of his opinion.

Toni H.

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