The news and Foreign Exchange trading
News drives financial markets – news can be the sole reason why traders and investors choose to buy or sell financial assets! In stock trading, market moving news is often company earnings reports, release of financial accounts, profit warnings and economic outlooks. In commodity markets, market moving news can anything that has an impact of supply and demand, such as weather forecasts and consumer habits. In the Forex market, market moving news is often central bank statements, interest rate changes, economic projections and indicators, and political events.
To understand what news events impact the Forex markets, we need to first understand what the Forex market represents… The Forex market is the market for currency. Just as a stock should be a true reflection of a companies worth, a currency should be a true reflection of a countries economic health or future health. A strong currency should mean that the market sees that particular countries economy as healthy or getting healthier, whereas a currency that is weak should be the opposite. A weakening currency can also indicate uncertainty.
What news events move the Forex markets?
Understanding what a currency represents, i.e a reflection of a countries economic health or future economic health, news events that impact currency markets are news events that give an indication of a countries economic performance.
They are 2 types of news events; scheduled and unscheduled news events. It is hard to plan/trade unscheduled news events as we don’t know when they will happen, so most traders and investors focus on scheduled events.
Scheduled News Events
Rate Announcements – Interest rate cuts and hikes move the FX market. Interest rates are a way that central banks try to manage economic growth and inflation. They are one of the key market moving news events in the FX world.
Monetary Policy and Rate Statements – Just like rate announcements, monetary policy is used to try and manage economic growth and inflation. These statements are often released the same time as rates are announced.
Central Bank Speeches – Sometimes these speeches can “leak” information that can be used to predict what rate and monetary policy decisions central banks may make next, causing market movement.
CPI – CPI is a measure that examines the price of certain goods and services within a country. It moves the Forex market as the figure is used by traders, investors and economists to track a countries inflation.
GDP – Gross Domestic Product (GDP) is a monetary measure of the market value of all goods and services within a countries borders at a certain period. It is used to indicate economic health as an economic indicator.
Trade Balance – Trade balance or balance of trade (BOT) is the difference between a countries imports and exports for a specified time period. It is another economic indicator.
Employment Change/Unemployment Rate – A countries employment and unemployment rate is another indicator that can be used to predict a countries economic health.
Political Votes – Political parties often have policies and views that can impact a countries economy. Referendums and other political votes are the same.
The above list is not inclusive, they are other news events that can move the FX markets, we have just listed the main events that cause market volatility.
Unscheduled News Events
These events can be anything that could impact a countries economy. In recent years, unscheduled news events have been things like…
Declarations of war
Military tension between countries
Unexpected political announcements
Unexpected interest rate changes
How to prepare for news events
The best way to prepare for these events is to know when they are happening. TriumphFX has it’s own economic calendar that you can use for free… https://www.tfxi.com/tools/economic-calendar
Traders prepare for market moving news in many different ways. This can be anything from reducing current positions, taking partial profit, closing positions, adding to positions, adjusting stop-losses or simply to stop trading. The best thing to do is gain some experience, with time you will know how you want to best prepare for market moving news.
Can news events be traded?
Yes. Traders and investors that use the news to predict future currency price movement refer to this as fundamental analysis. Usually fundamental analysis is done by reviewing a number of economic indicators and planning trades carefully, rather than trading single news events.
Combining our MT4 trading platform and our economic calendar can help you be well prepared for news events that impact the Forex markets.
Start trading today with Triumph’s Forex MT4 trading platform – https://www.tfxi.com/