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NEWS & How They Move The Forex Markets

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What is ‘NEWS’ in trading? 

Today, most Traders rely on technical and fundamental analysis for taking trading decisions. There is also a set of traders who make investment decisions based on market news. Market news is exchanging information on current economic and financial events. The News itself becomes an indicator and is used by short term traders to catch immediate movements. These movements create trading opportunities.  Some News traders also look for large scale impacts made by news like corporate profits, a change in leadership of company, merger or acquisition, or fraud.  All of these spark fluctuations in currency, share price, some of which can be negligible or dramatic. News that make the highest impact and will cause long term effect are the news events like interest rate changes, unemployment, export rates, and changes in regulations.

News traders should always remember to interpret the news correctly. It’s necessary to understand the difference and reliability of some news sources (for example tweets and blogs can vary from newspaper stories).  The authority and expertise of the news publisher as it can be difficult to describe which news agency that is for-profit, public, and non-profit media. For that reason, algorithms and rule-based engines have been developed by big hedge funds which help traders to filter news stories and process information as fast as possible. In the Era of News trading, a few microseconds can mean a difference between profit and loss for the trade. Traders have also changed the way they respond to the news with a shift in news and media.

What does the News in trading measure?

Every day we are bombarded with current affairs and economic news. We hear so many things like the economy is struggling, consumer confidence is going down and economy related terminology that is being used to describe the economy. It’s important to understand what these terms are that are being used in every news report and what are the various factors that are influencing the economy.

CPI: Economic news measures the CPI index, which affects market sentiment, and the market reacts positively towards a better CPI number. CPI examines the weighted average of price changes in a basket of goods and services such as food, durable goods, and healthcare.

Retail Sales: Retail Sales in emerging countries make up about 2/3 of the market. If the retail sale is good, then we possibly see a better GDP.  GDP is the value of the total sum of all finished goods and services produced within a country in a specific time period. GDP is a tool used by policy-makers, investors, and businesses in strategic decision making.

Unemployment Rate: If news comes out with the information that people are losing jobs. Then they will not have money to spend on durable goods, therefore affecting GDP as a whole.

PMI: One of the biggest news releases which keep traders on their foot is the PMI data. The PMI is based on major indicators like new orders, inventory levels, production, supplier deliveries, and employment conditions.

Various Source of Information for ‘News’ on Major currencies:

The Internet has some excellent business, economics, and finance news sites. Traders can look at these sites to find the news that one is looking for. Some of the popular sites are Bloomberg.com, money.cnn.com, finance.yahoo.com, efinancialnew.com, economists.com, businessweek.com, etc. The sites do have segregated the news based on microeconomic and macroeconomic factors. Based on the time frame of trading, one can take appropriate investment decisions. News that tends to affect all the currencies and news which is country specific is also correctly published by the news websites. Here are few country-specific news which effects their local currency only

GBP (Sterling) – https://tradingeconomics.com/united-kingdom/news

USD – https://tradingeconomics.com/united-states/news

EUR – https://tradingeconomics.com/euro-area/news

JPY – https://tradingeconomics.com/japan/news

CAD – https://tradingeconomics.com/canada/news

AUD – https://tradingeconomics.com/australia/news

CHF – https://tradingeconomics.com/switzerland/news

NZD – https://tradingeconomics.com/new-zealand/news

What do traders care about News and its impact on the currency?

The short term sentiment on currency is defined by economic news. If market participants feel the data will exceed what is forecasted, then this news will be taken into consideration. If market makers expect the Reserve Bank to raise its interest rates, the exchange rate of that currency pair will start to rise even before the meeting. Market usually prices in a rate hike by the time the actual RB meeting takes place. Once the real news comes out of Reserve Bank raising its interest rates participants who had been waiting just for the news would actually start selling the currency because all the buying has been done before and pair would start to decline and not increase after the rate hike. For a retail participant, in these situations, it is always better to be up-to-date with the forthcoming events and economic releases. Know the correlation between various news releases and be well prepared in advance. For a trader, it is always better to use wide stop losses when trading the news.

Frequency of the release

The frequency of publication of the news depends on which event the news is based on. Different economic indicators are surveyed and estimated at different time intervals. The Employment situation, Labor turnover is released every month.  The Consumer price index, Import, and export price index, Consumer expenditure survey, which is all related to Inflation is estimated annually.  On the other hand, GDP & Corporate Earnings are published each quarter.

The Bottom Line

A few things to keep in mind when trading the news are when we are expecting the price of a currency to move in a certain direction based on our analysis our orders need to be in place before the news release. As it is always good to understand the underlying reasons why and where the market would move after the news is released. The News provides great profit opportunities for Forex traders. However, big profits always come with bigger risks, and hence we need to have a solid trading plan before a particular event. News Trading is meant for only those traders who are aggressive and not for conservative traders. We should make use of many options strategies like straddles, which profits us during a highly volatile state of the market.

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