How does Unemployment Rate affect forex?
In financial markets, especially Forex, economic indicators and central bank statements play a crucial role for traders aiming to make a profit. In this article, In this article, we will introduce one of the most important economic indicators, called the Unemployment Rate. We will also learn how this economic rate or indicator can impact the Forex market and the prices of currency pairs.
The Impact of the Unemployment Rate on a Country’s Currency Strength in the Forex Market
We all know that high unemployment is detrimental to any society. When unemployment is high, a country’s economy tends to be weak. Conversely, a low unemployment rate indicates a strong economy, making that country’s currency attractive for investment, welcomed by traders and investors alike.
“If we want to invest in a currency, we need to know which one has the best profit potential and what key features to look for. We choose a currency when its country’s economy is strong and growing, with a very low unemployment rate. When many people are employed, purchasing power rises, strengthening the economy. Now we have a look at these economic indicators together on the Forex Factory website.
Photo by Forex Factory website
In the photo above, the news about the Unemployment Rate indicator is negative, as the unemployment rate released is higher than the forecasted value. This has a negative impact on the Australian Dollar/US Dollar pair, causing the AUD/USD to weaken. Now, let’s look at the chart to see how this news has affected the price and created a trading opportunity.
Photo by TradingView
In the picture above, we have highlighted the moment when the news was released on the AUD/JPY currency pair with a green box. At this 30-minute timeframe, right when the news comes out, the market starts forming red bearish candles and the price drops.
If the unemployment rate is lower than the forecasted value, it strengthens the currency. But if the unemployment rate is higher than expected, it weakens the country’s currency. To make successful trades, we need to have a good understanding of fundamental analysis.
We hope you enjoyed this article.