Successful traders are often one step ahead of the rest, predicting how currency prices will respond to the latest news and economic releases in the form of fundamental analysis
. Those who can spot, interpret and respond to those data releases may well have an advantage over other traders. But which news is it important to pay attention to?
A Forex calendar like Forex Factory
will be your best friend in keeping abreast of scheduled news such as employment data releases. Statistics such as the unemployment rate, employment change and the non-farm payroll for the US tend to indicate both business sentiment (as organisations are more likely to hire people when business is going well) as well as consumer confidence.
Central bank announcements
The central banks such as the European Central Bank (ECB), the Reserve Bank of Australia (RBA) and the Federal Reserve (Fed) make crucial decisions on interest rates and monetary policies that will influence their nation’s productivity and economic activity. Take note when planned announcements will occur and whether the news is expected to be positive, neutral or negative.
In particular, Trade Balance and the Gross Domestic Product (GDP), Consumer Price Index (CPI) and the Producer Price Index (PPI). Changes in these measures can be closely tied to fluctuations in currency values and indices.
Trump policies, Syria, Brexit, North Korea and German politics – these are the geopolitical events that are currently demanding attention from the media and can influence how one currency appreciates or depreciates in relation to others. Gain an understanding of how, and you’ll be better equipped to trade on uncertainties and breaking news.
How do I actually trade releases?
In the case of scheduled announcements, traders will often wait for the moment just before an expected result and trade on the swing up or down that they expect from it. Quite often there will be media speculation about whether interest rates will be kept the same, increased or decreased, which will have different impacts on the relevant currency value. Traders might also watch out for releases on a Saturday (while the Forex market is closed) that will see a high level of optimism when the markets open again, only to drop down during the day or week. A savvy intraday trader may aim to capitalise on that change in value.
How long do I have to respond to news?
There’s no simple answer to this question. Some announcements will see an effect immediately, while others may take a few days to really influence the market. Statements on factors like interest rates and employment rates can often have a rapid impact.
Our ForexCT eBook is a great place to start if you’re new to trading on the foreign exchange market, and it’s completely free to download.
Risk Warning: Investing in Margin FX products carries a high degree of risk and is not suitable for all investors.