My name is Nadia Fleischer and I work for Marketiva Corporation (http://www.marketiva.com/). Marketiva is a foreign exchange (forex) dealer where people can start trading with as little as $1 and learn how to successfully participate in the largest financial market in the world.
INTRODUCTION
Currency exchange rates are shaped by economic data. The foreign exchange markets currency pairs depend on the strength of the respective economies they represent. Economic data are released almost every day by specialized government agencies located across the globe. Each agency is accountable for keeping an eye on specific economic issues. They collect data based on extremely stringent guidelines. They build formal econometric models in an attempt to pierce through the underlying patterns and developments evolving in the economies of their respective countries. In fact, it is the data that these agencies release that we will attempt to lift the veil on in this article. US fundamental announcements produce enormously spectacular moves in the currency markets. The large volume of these economic data releases in a 365 Gregorian calendar renders a trader's endeavor to predict the market more complex. All in all, economic data releases account for more than 80 percent of short term volatility in the currency markets. They are truly the source of momentum in the Forex market. Tom Peters said once "bigness is automatically badness unless you fight it every single day." Due to the sheer volume of announcements, trading these news announcements should be undertaken cautiously.
THE BEIGE BOOK
The Beige Book is released at 2:15 pm Eastern time, two Wednesdays before every FOMC meeting and published 8 times a year by the Federal Reserve Board. This Report is entitled "Summary of Commentary on Current Economic Conditions by Federal Reserve District". Each Federal Reserve Bank collects anecdotal accounts on current economic conditions in its district via reports from bank and branch directors and interviews with key business contacts, economists, market experts, and several other sources. This report reviews narrations of economic conditions by district and sector. The Beige Report is by no means a big market mover; it is only an attempt to gauge the vigor of the US economy. It does not reflect the more informed views of Fed members. The Beige Report can move markets when its tea leaves pronouncements are qualitatively superior to expectations by analysts. In fact, Beige report findings are timely and data is four weeks old. FOMC members peruse this report prior to their interest rates meetings for the following simple reason "How does one acquire knowledge about reality by working in one's office with pen and paper?", according to the economist Robert E. Lucas. The Beige book may anticipate the future direction of interest rates despite its downright descriptive nature, which lacks any data series models. It is indeed a report of economic conditions in a simple prose, or story-telling, fashion.
Information reported varies according to region's economic significance and contribution to the overall economy. One district may release comprehensive information on farms, while others will not, and there are 12 Federal districts In the US. The Beige book is reviewed and analyzed after its release. There are several individuals who supply the anecdotal information contained within the Beige book or report: directors of the 12 Federal Reserve Banks and their branches offer written economic reports of conditions in their respective regions. Reserve Banks presidents and economists journey through their districts and get together with business people and bankers to examine conditions in their industries. Reserve banks preserve a set of connections with industry executives who are contacted on a regular basis before FOMC meetings. However, these contacts are small in quantity and are not selected randomly, which undermines the predictive power of the Beige book. The Federal Reserve Board relies on formal models such as national economic models and aggregate statistics to set monetary policy. However, statistical data is reported with a substantial time lag, which renders reading the Beige book a necessity in order to evidence and support patterns and developments exhibited by these more advanced econometric models and data mining techniques. Monthly state employment and unemployment statistics are reported by the US Bureau of Labor Statistics with a one month lag.
Bureau of Economic Analysis final measures are subject to revisions as more robust data become available. One bank on a rotating basis writes an overview and summary of national economic conditions based on the twelve region's report. The predictive power of the Beige report surpasses that of the Blue Chip consensus Forecast. The Beige book can fill gaps in data series since setting monetary policy requires knowing as much about current and future economic conditions before making decisions. In fact, the Federal Reserve Banks began publishing this report in 1970. It used to be called "the red book" and it was used for exclusively internal decision purposes. In 1983 the report was released to the public, and the color of its cover was changed to beige.
ISM INDEXES
The Institute for Supply Management or ISM for short releases vital statistics about the US economy. Until January 02, 2002 the name of ISM was the National Association of Purchasing Management or NAPM. ISM is the producer of the highly sought after reports: Manufacturing and Non-Manufacturing ISM Report on Business. These reports are considered to be key reports. They are leading economic indicators and are followed by economists, profit and non-profit organizations and media across the world. Due to the significant change that took place in the supply management industry, ISM altered its name to reposition itself in the supply management industry as a leader. However, the contents of the Report on Business have not changed at all, and this report is commonly known as the ISM Report on Business. ISM produces several types of reports. The key report is the ISM Manufacturing Report on Business, which is released on the first business day of every month. The ISM Manufacturing Report on Business is considered by many economists to be the most reliable short term economic indicator available today. It is reviewed on a regular basis by government agencies and economic and business leaders for its contemporaneous and accurate information concerning the manufacturing sector of the US economy. The other report, which ISM also releases, is the ISM Non-Manufacturing Report on Business. This report provides insightful information about the services sector of the US economy, which accounts for more than 80 percent of Gross Domestic Product bottom line results. The ISM Non-Manufacturing Report on Business was first published in June 1998 and is released on the third business day of every month. The third report published by ISM is the ISM Semi-annual Report on Business, which is released to the public in May and December. This report offers insights into both the manufacturing and non-manufacturing sectors of the US economy. This report also offers projections for the next six months. Members of the ISM Business Survey Committee receive are surveyed every month. They are asked to identify month to month changes in each ISM index. The PMI is a composite index, which is used only in the Manufacturing Report on Business. Before September 01, 2001, PMI used to stand for Purchasing Managers' Index. Today, ISM still uses PMI despite its strategic repositioning within the supply management industry and abandonment of its purchasing role. The PMI index is based on seasonally adjusted diffusion indexes for five indicators with varying weights applied. New Orders 30 percent, Production 25 percent, Employment 20 percent, Supplier Deliveries 15 percent, Inventories 10 percent. A PMI index over 50 percent is tantamount to growth and expansion of the manufacturing sector of the US economy relative to the previous month. A reading below 50 percent suggests contraction and a shrinking US industry sector. A reading of 50 suggests no change in the industry sector. A diffusion index in a measure of dispersion; that is, the degree to which a change in something is spread out or diffused within a specific group. For example, if every member of a sample population is asked whether something has changed and in which direction, he or she would answer in one of the three ways: it has not changed, it has increased, or it has decreased. Every ISM index is a diffusion index and is an indicator of month to month change. The percentage responses to Increased, unchanged, or worse are not easy to evaluate against previous periods, hence the need to diffuse these percentages arises. A diffusion index exhibits the level to which the change is dispersed or diffused throughout the sample population.
Respondents to the ISM surveys indicate each month whether particular activities, for example new orders, have increased, decreased, or are unchanged from the previous month. The ISM indexes are computed by taking the percentage of survey respondents who report that the activity has increased and adding it up to one half of the survey respondents percentage who report the activity has not changed and totaling the two percentages. The use of half of the same percentages robustly measures the bias toward a positive 50 percent or negative index reading. To illustrate the computation of a diffusion index, Let's say the response from a sample population involving a specific attribute is 20 percent said better, 70 percent said same, and 10 percent said worse, the diffusion index would be 55 percent ,that is, 20 percent + 70/2 percent. A reading of 50 indicates no change from the previous month. Economists and statisticians have concluded that the farther the index is away from a 50 percent reading, the rate of change is greater. Therefore, an index of 70 percent suggests a faster rate of increase than an index of 60. All indexes in the Non-Manufacturing Report on Business are not composite indexes because there is not enough data to formulate a composite index for the Non-Manufacturing Report on Business. However, this report is assessed on a regular basis and the most analogous index is the Business Activity Index. The definitions of the indexes included in the Manufacturing and Non-Manufacturing Report on Business are as follow: These are the definitions for the ones included in the Manufacturing Report on Business: New Orders: mirrors the level of new orders from customers. Production: measures the rate and direction of change in the level of production.
Employment: reports the rate of increase or decrease in the level of employment. Supplier deliveries: discloses whether deliveries from suppliers are faster or slower. Inventories: reflects increases or decreases in inventory levels. Customer Inventories: measures the degree of customer inventories. Prices: reports whether organization are paying more for products and services. Backlog of Orders: measures the amount of backlog of orders, whether increasing or decreasing. New Export Orders: reports on the level of orders, requests for services, and other
activities to be provided outside of the US; Imports: measures the rate of change in goods imported. The following are definitions for the Non-Manufacturing Report on Business indexes: Business Activity: measures the rate and direction of change in the level of business activity. New Orders, Employment, Supplier deliveries, Inventories, Prices, Backlog of Orders, New Export Orders, Imports are all similar to their manufacturing counterparts as illustrated above. Inventory Sentiment: measures the rate of inventories based on a sentiment of too high or too low. Each month the industries reporting the most significant changes are listed in the ISM report. The ISM report does also list those commodities, which are up or down in price, and/or are in short supply. The ISM website is at http://www.ism.ws/. The ISM website contains extensive historical information for the PMI and Manufacturing and Non-Manufacturing indexes. Adjustments for seasonality effects are made every year in the January reports. In fact, the seasonal adjustments are developed by the US department of Commerce and handed over to ISM. As of January 2003, the indexes that are seasonally adjusted are the following: Manufacturing: New Orders, Production, Employment, Supplier Deliveries, Inventories, Export Orders, Imports; Non-Manufacturing: Business Activity, New Orders, Employment, Prices. There are regional reports on business but these reports are not produced by ISM; they are produced by ISM affiliates and often cover the market area for the affiliate. Some cover major cities areas while others are state- wide reports. A list of regional reports is available at http://www.ism.ws/ISMReport/index.cfm#regional page. There are countries that offer similar information to that found in the ISM Manufacturing Report on Business. The United Kingdom and Denmark are two such examples. In conclusion, the Report on Business is a month to month vital economic indicator. ISM releases semi-annual predictions in December and May that report on business conditions, trends, and expectations for the next year as well as for the final balance of the present year. These reports are both released via Business Wire and posted on ISM's website. All in All, the ISM manufacturing index is based on surveys of 300 purchasing managers across the US. They represent 20 industries within the manufacturing industry sector. The ISM manufacturing index is seasonally adjusted for the effects of variations within the year owing to differences due to holidays and institutional changes. The Manufacturing Business Report is released at 10 am eastern time. The ISM Non Manufacturing is also called ISM services index. It is based on a survey of approximately 370 purchasing executives in several services industries such as finance, insurance, real estate, communications and utilities. The ISM services Index is also released at 10:00 am Eastern Time.
Again, we suggest you to trade with virtual money for as long as possible, before trading your own funds. We will continue this practice of sending educational e-mails in order to help you obtain further knowledge about the foreign exchange market.
INTRODUCTION
Currency exchange rates are shaped by economic data. The foreign exchange markets currency pairs depend on the strength of the respective economies they represent. Economic data are released almost every day by specialized government agencies located across the globe. Each agency is accountable for keeping an eye on specific economic issues. They collect data based on extremely stringent guidelines. They build formal econometric models in an attempt to pierce through the underlying patterns and developments evolving in the economies of their respective countries. In fact, it is the data that these agencies release that we will attempt to lift the veil on in this article. US fundamental announcements produce enormously spectacular moves in the currency markets. The large volume of these economic data releases in a 365 Gregorian calendar renders a trader's endeavor to predict the market more complex. All in all, economic data releases account for more than 80 percent of short term volatility in the currency markets. They are truly the source of momentum in the Forex market. Tom Peters said once "bigness is automatically badness unless you fight it every single day." Due to the sheer volume of announcements, trading these news announcements should be undertaken cautiously.
THE BEIGE BOOK
The Beige Book is released at 2:15 pm Eastern time, two Wednesdays before every FOMC meeting and published 8 times a year by the Federal Reserve Board. This Report is entitled "Summary of Commentary on Current Economic Conditions by Federal Reserve District". Each Federal Reserve Bank collects anecdotal accounts on current economic conditions in its district via reports from bank and branch directors and interviews with key business contacts, economists, market experts, and several other sources. This report reviews narrations of economic conditions by district and sector. The Beige Report is by no means a big market mover; it is only an attempt to gauge the vigor of the US economy. It does not reflect the more informed views of Fed members. The Beige Report can move markets when its tea leaves pronouncements are qualitatively superior to expectations by analysts. In fact, Beige report findings are timely and data is four weeks old. FOMC members peruse this report prior to their interest rates meetings for the following simple reason "How does one acquire knowledge about reality by working in one's office with pen and paper?", according to the economist Robert E. Lucas. The Beige book may anticipate the future direction of interest rates despite its downright descriptive nature, which lacks any data series models. It is indeed a report of economic conditions in a simple prose, or story-telling, fashion.
Information reported varies according to region's economic significance and contribution to the overall economy. One district may release comprehensive information on farms, while others will not, and there are 12 Federal districts In the US. The Beige book is reviewed and analyzed after its release. There are several individuals who supply the anecdotal information contained within the Beige book or report: directors of the 12 Federal Reserve Banks and their branches offer written economic reports of conditions in their respective regions. Reserve Banks presidents and economists journey through their districts and get together with business people and bankers to examine conditions in their industries. Reserve banks preserve a set of connections with industry executives who are contacted on a regular basis before FOMC meetings. However, these contacts are small in quantity and are not selected randomly, which undermines the predictive power of the Beige book. The Federal Reserve Board relies on formal models such as national economic models and aggregate statistics to set monetary policy. However, statistical data is reported with a substantial time lag, which renders reading the Beige book a necessity in order to evidence and support patterns and developments exhibited by these more advanced econometric models and data mining techniques. Monthly state employment and unemployment statistics are reported by the US Bureau of Labor Statistics with a one month lag.
Bureau of Economic Analysis final measures are subject to revisions as more robust data become available. One bank on a rotating basis writes an overview and summary of national economic conditions based on the twelve region's report. The predictive power of the Beige report surpasses that of the Blue Chip consensus Forecast. The Beige book can fill gaps in data series since setting monetary policy requires knowing as much about current and future economic conditions before making decisions. In fact, the Federal Reserve Banks began publishing this report in 1970. It used to be called "the red book" and it was used for exclusively internal decision purposes. In 1983 the report was released to the public, and the color of its cover was changed to beige.
ISM INDEXES
The Institute for Supply Management or ISM for short releases vital statistics about the US economy. Until January 02, 2002 the name of ISM was the National Association of Purchasing Management or NAPM. ISM is the producer of the highly sought after reports: Manufacturing and Non-Manufacturing ISM Report on Business. These reports are considered to be key reports. They are leading economic indicators and are followed by economists, profit and non-profit organizations and media across the world. Due to the significant change that took place in the supply management industry, ISM altered its name to reposition itself in the supply management industry as a leader. However, the contents of the Report on Business have not changed at all, and this report is commonly known as the ISM Report on Business. ISM produces several types of reports. The key report is the ISM Manufacturing Report on Business, which is released on the first business day of every month. The ISM Manufacturing Report on Business is considered by many economists to be the most reliable short term economic indicator available today. It is reviewed on a regular basis by government agencies and economic and business leaders for its contemporaneous and accurate information concerning the manufacturing sector of the US economy. The other report, which ISM also releases, is the ISM Non-Manufacturing Report on Business. This report provides insightful information about the services sector of the US economy, which accounts for more than 80 percent of Gross Domestic Product bottom line results. The ISM Non-Manufacturing Report on Business was first published in June 1998 and is released on the third business day of every month. The third report published by ISM is the ISM Semi-annual Report on Business, which is released to the public in May and December. This report offers insights into both the manufacturing and non-manufacturing sectors of the US economy. This report also offers projections for the next six months. Members of the ISM Business Survey Committee receive are surveyed every month. They are asked to identify month to month changes in each ISM index. The PMI is a composite index, which is used only in the Manufacturing Report on Business. Before September 01, 2001, PMI used to stand for Purchasing Managers' Index. Today, ISM still uses PMI despite its strategic repositioning within the supply management industry and abandonment of its purchasing role. The PMI index is based on seasonally adjusted diffusion indexes for five indicators with varying weights applied. New Orders 30 percent, Production 25 percent, Employment 20 percent, Supplier Deliveries 15 percent, Inventories 10 percent. A PMI index over 50 percent is tantamount to growth and expansion of the manufacturing sector of the US economy relative to the previous month. A reading below 50 percent suggests contraction and a shrinking US industry sector. A reading of 50 suggests no change in the industry sector. A diffusion index in a measure of dispersion; that is, the degree to which a change in something is spread out or diffused within a specific group. For example, if every member of a sample population is asked whether something has changed and in which direction, he or she would answer in one of the three ways: it has not changed, it has increased, or it has decreased. Every ISM index is a diffusion index and is an indicator of month to month change. The percentage responses to Increased, unchanged, or worse are not easy to evaluate against previous periods, hence the need to diffuse these percentages arises. A diffusion index exhibits the level to which the change is dispersed or diffused throughout the sample population.
Respondents to the ISM surveys indicate each month whether particular activities, for example new orders, have increased, decreased, or are unchanged from the previous month. The ISM indexes are computed by taking the percentage of survey respondents who report that the activity has increased and adding it up to one half of the survey respondents percentage who report the activity has not changed and totaling the two percentages. The use of half of the same percentages robustly measures the bias toward a positive 50 percent or negative index reading. To illustrate the computation of a diffusion index, Let's say the response from a sample population involving a specific attribute is 20 percent said better, 70 percent said same, and 10 percent said worse, the diffusion index would be 55 percent ,that is, 20 percent + 70/2 percent. A reading of 50 indicates no change from the previous month. Economists and statisticians have concluded that the farther the index is away from a 50 percent reading, the rate of change is greater. Therefore, an index of 70 percent suggests a faster rate of increase than an index of 60. All indexes in the Non-Manufacturing Report on Business are not composite indexes because there is not enough data to formulate a composite index for the Non-Manufacturing Report on Business. However, this report is assessed on a regular basis and the most analogous index is the Business Activity Index. The definitions of the indexes included in the Manufacturing and Non-Manufacturing Report on Business are as follow: These are the definitions for the ones included in the Manufacturing Report on Business: New Orders: mirrors the level of new orders from customers. Production: measures the rate and direction of change in the level of production.
Employment: reports the rate of increase or decrease in the level of employment. Supplier deliveries: discloses whether deliveries from suppliers are faster or slower. Inventories: reflects increases or decreases in inventory levels. Customer Inventories: measures the degree of customer inventories. Prices: reports whether organization are paying more for products and services. Backlog of Orders: measures the amount of backlog of orders, whether increasing or decreasing. New Export Orders: reports on the level of orders, requests for services, and other
activities to be provided outside of the US; Imports: measures the rate of change in goods imported. The following are definitions for the Non-Manufacturing Report on Business indexes: Business Activity: measures the rate and direction of change in the level of business activity. New Orders, Employment, Supplier deliveries, Inventories, Prices, Backlog of Orders, New Export Orders, Imports are all similar to their manufacturing counterparts as illustrated above. Inventory Sentiment: measures the rate of inventories based on a sentiment of too high or too low. Each month the industries reporting the most significant changes are listed in the ISM report. The ISM report does also list those commodities, which are up or down in price, and/or are in short supply. The ISM website is at http://www.ism.ws/. The ISM website contains extensive historical information for the PMI and Manufacturing and Non-Manufacturing indexes. Adjustments for seasonality effects are made every year in the January reports. In fact, the seasonal adjustments are developed by the US department of Commerce and handed over to ISM. As of January 2003, the indexes that are seasonally adjusted are the following: Manufacturing: New Orders, Production, Employment, Supplier Deliveries, Inventories, Export Orders, Imports; Non-Manufacturing: Business Activity, New Orders, Employment, Prices. There are regional reports on business but these reports are not produced by ISM; they are produced by ISM affiliates and often cover the market area for the affiliate. Some cover major cities areas while others are state- wide reports. A list of regional reports is available at http://www.ism.ws/ISMReport
Again, we suggest you to trade with virtual money for as long as possible, before trading your own funds. We will continue this practice of sending educational e-mails in order to help you obtain further knowledge about the foreign exchange market.
