Using News and Events to Trade Forex

Events to Trade Forex

Asked what is commonly said for former UK Prime Minister Harold Macmillan. Forex traders should pay attention, as “events” provide an opportunity to make money and provide an easy way to lose it.

then what is it? Well, the uncertainty of anything from an important data release such as the monthly US labor market report to the central bank’s decision on interest rates or national elections.

Donald Trump’s victory in the 2016 US presidential election, the Brexit vote by Britain to leave the European Union the same year and the uncertain outcome of the 2017 German federal election surprised everyone.

From a foreign exchange trading point of view, these events really matter.

If the US employment report is stronger or weaker than forecast, the markets will move faster. If a central bank unexpectedly raises or lowers interest rates, they will too,

and if an election or referendum results defy referendum surveys, the market may change rapidly.

events to trade

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Forex events when actually trading

In short, the phenomenon really matters because asset prices can react strongly. How they will respond is a more difficult question to answer.

In some cases, the reaction will be predictable: think of a recession in the pound when the British decided to leave the European Union or crashed into the euro against the Swiss franc in 2015 when the Swiss National Bank dropped the fixed exchange rate – or “Peg” – between two currencies.

According to the data, stronger than economic data forecasts would typically raise the national currency on the argument that a trivial economy would raise the specter of tight monetary policy – higher interest rates or stimulus cuts – which would make the currency more attractive . The weaker than expected number will have the opposite effect.

However, the response will depend on which asset is being traded. For example, at the time of writing there is an “inverse relationship” between the pound and the London stock market,

so a higher or lower move in the pound is usually accompanied by a move in the opposite direction by the FTSE 100 index of major London stock prices.

Positioning matters as well, because if most foreign exchange traders are “long” currencies – then its price is expected to rise – and an economic release is weaker than expected, the resulting fall will be much larger than the traders’ “short” – Expect the price to drop anyway So the risk can be “odd”,

meaning that the upside is a surprise, downward one can say twice the surprise.

Trading news to increase your foreign exchange structure

 However, trading news is a completely respectable strategy, as long as you know what is important and what is not news events to trade. Central bank meetings to decide on monetary policy,

for example, are always important – but sometimes more so than others. As further guidance is being given to central bankers, the markets can be given a firm footing that the policy will remain unchanged.

This does not mean that there will be no backlash as the specifics of central bankers are important, but it does mean that later sharp price moves are less likely to occur unless, of course, the guidance was incorrectly or simply incorrect. .

Nevertheless, a central bank policy meeting where we are almost certain that nothing will change and no press conference is scheduled is unlikely to signal rapid price moves. In other words, as a foreign exchange trader, you need to know what is important and what is not.

It is also important to understand that some “events” run in just one market while others can outpace them all. The news of a surprisingly large increase in oil inventions, for example, would probably weaken the price of oil, but would have little effect elsewhere. The news of unexpected increase in interest rates, especially in the US, will affect every market.

A US interest rate increase, which is anticipated, will not only send the dollar soaring, but will certainly weaken the prices of gold and other commodities, staggering stock prices and lowering US government bond prices Will – “Treasury” – because their yields are high. There will certainly be an international backlash as well, with global stock prices below Wall Street down and global bond prices down after the Treasury.

WHY EVENTS TO TRADE RISK MATTERS

Simply put, global markets are all inter-related; There is no point in benefiting from a long position in the dollar if one shakes others and if you lose it from a long position in gold because you have forgotten that they often move in opposite directions. Therefore, a sensible plan is to decide if an event is likely to occur, put it in context and decide on possible scenarios.

What will happen if this happens? What will happen if this happens? Am I expecting prices to rise rapidly, in a particular market, or am I in a recession, expecting them to fall? Which is more, risk to reverse or risk to downside. What is the best market in currency, stocks, bonds or commodities?

Note here that the significance of the word “surprise”, is already used many times. What matters is not so much as it was expected to be. If, for example, the UK raises interest rates, the pound can be expected to strengthen and weaken London stocks. However, this would only happen if the decision was a surprise.

If it was not and was “already in price” there would be little response. In fact, if a half-cent increase was anticipated and the actual increase was just a quarter of a percentage point, the pound would almost certainly weaken, and stock prices go up.

Bank of England Governor Mark Carney said unexpectedly in February 2018 that what happened here with the pound would require the UK’s monetary policy to tighten somewhat earlier and slightly more than the bank in November 2017 Was expected

FIVE-MINUTE TIMEFRAME

It is also important to understand what a surprise is. Some statistics, such as US payroll data, are difficult to predict. So if a figure comes out that is 10,000 more or less than the forecast, the market’s strong reaction is unlikely. If the number is 60,000 more or less, there is a greater likelihood of faster price movements later.

Other subtleties also occur during the trading of foreign exchange. The US Employment Report has primarily focused on “non-agricultural payroll” numbers – changes in the number of people employed in the US outside the agricultural sector. The initial response, therefore, is typically the figure for monthly labor market reports. However, at the same time an impression of other figures is released and the initial response may be reversed very rapidly, when data analysts indicate in some other way, perhaps in unemployment figures or in revisions of previous releases.

Indeed, it is a very common practice for markets to move rapidly after the release of economic data, only to move faster when the data is analyzed more carefully – in all minutes.

Note here that the significance of the word “surprise”, is already used many times. What matters is not so much as it was expected to be. If, for example, the UK raises interest rates, the pound can be expected to strengthen and weaken London stocks. However, this would only happen if the decision was a surprise.

If it was not and was “already in price” there would be little response. In fact, if a half-cent increase was anticipated and the actual increase was just a quarter of a percentage point, the pound would almost certainly weaken, and stock prices go up.

Bank of England Governor Mark Carney said unexpectedly in February 2018 that what happened here with the pound would require the UK’s monetary policy to tighten somewhat earlier and slightly more than the bank in November 2017 Was expected

Fashion at events to trade Risk

Economic releases also have fashions. Long ago, it was the figures of international trade that moved the financial markets. Later, it was money supply data. Today, it is more about central banks and their possible future decisions on interest rates and monetary policy.

Today, trade figures generally will not induce market volatility, while inflation figures are likely to be higher. In addition, if a figure is too unreliable, such as a monthly number for US durable goods orders, then a surprising figure is less likely to indicate a market reaction.

Even within a release, fashions can change. In the UK employment report, the recent unemployment rate was focused on.

Now, however, the focus is on average earnings numbers mainly due to its importance for inflation, consumption and hence economic growth.

It is also important to distinguish between “hard” and “soft” data. Formerly, generally official figures are backward-looking. For example, the economic growth figures released in January appear to be back in the October to December period. Soft data, usually released by private sector companies, may be less reliable, but often contain expected components.

So, in short, event trading can be highly rewarding, as well as potential loss-making, but preparation is important. As always in markets, work out what is important – the possibility of inducing volatility – and what is not. Decide whether the consensus generally compiled from economists’ surveys or elections is correct.

If not, in which direction is it wrong? Which property is likely to react? What is the potential upside or downside and is there a risk of high or low movement in the opposite direction? How is the market positioned?

In other words, expected events can provide opportunities and unexpected events can ruin even the best-planned strategies.

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1 Comment

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