The forex market is open 24 hours a day, five days a week (from Sunday, 5 p.m. to Friday, 4 p.m. ET), which is one of the many benefits of trading currencies. Economic data is frequently the primary driver of short-term swings in markets since news is what causes market movements. This is especially true with regard to the currency market, which reacts to global news as well as U.S. economic data. Here, we examine which economic data is most important to forex traders, when it is issued, how traders can use this information to move the market, and more.
Which Currencies Need Your Focus?
Forex traders can make informed transactions by using the at least eight major currencies that are available for trading at most currency brokers, as well as any upcoming economic data. In actuality, the eight main most followed countries release at least seven pieces of data almost every workday (except from vacations). Therefore, there are many prospects for individuals who wish to trade news. The majority of traders are familiar with the eight major currencies:
1. U.S. dollar (USD)
2. Euro (EUR)
3. British pound (GBP)
4. Japanese yen (JPY)
5. Swiss franc (CHF)
6. Canadian dollar (CAD)
7. Australian dollar (AUD)
8. New Zealand dollar (NZD)
And there are many liquid currency pairs derived from the eight major currencies:
1. EUR/USD
2. USD/JPY
3. AUD/USD
4. GBP/JPY
5. EUR/CHF
6. CHF/JPY
There are easily exchanged currencies all across the world. This implies that you have the ability to choose the currencies and economic releases that you are really interested in. But generally speaking, U.S. economic announcements tend to have the biggest influence on forex markets because the dollar is on the “other side” of 90% of all currency exchanges.
It may seem easy, but trading news is not easy. The reported consensus figure is just one factor that matters; other factors include any changes to earlier reports and whisper numbers, which are unofficial and unpublished forecasts. Furthermore, certain data releases are more significant than others; this may be assessed by looking at the release’s relevance in connection to previous data releases as well as the prominence of the nation releasing the data.
For What Duration Does News Impact the Market?
In the Journal of International Money and Finance (2004), Martin D. D. Evans and Richard K. Lyons found that hours or even days after the release of the figures, the market may still be taking in or responding to news releases.
According to the study, the impact on returns usually happens during the first or second day, but it sometimes appears to last until the fourth day. On the other hand, the effect on the flow of buy and sell orders is still noticeable on the third day and can be seen on the fourth day.
How Can News Be Traded Actually?
The most popular strategy for trading news is to wait for a period of uncertainty or consolidation before a significant figure, then trade the breakout based on the news. This can be carried out over a few days or in a short amount of time (within a day). As an illustration, let’s examine the chart in Figure 2. The euro was holding its breath before the October data, which was scheduled for public release in November, following a dismal September figure.
Within a narrow 30-pip trading range, EUR/USD was stuck for the whole 17 hours prior to the publication. Since most major currency pairings are priced to four decimal places, the smallest change in a currency pair on the forex market is represented by a pip, which is the last decimal point. Given how likely it was that there would be a strong move at this time, news traders would have had an excellent opportunity to enter a breakout trade.
The following chart shows the hesitancy and uncertainty preceding the October non-farm payroll figures, which were announced in early November, with two horizontal lines forming a trading channel. Take note of the rise in volatility following the announcement of the figures.
As we have stated previously, trading news is more difficult than one may imagine. How come? The main cause is unpredictability. Even if you are taking the correct action, the market might not have the momentum to support it.
As an illustration, let’s examine the chart in Figure 3. To illustrate how challenging trading news releases can be, this chart displays activity following the identical release as the one in Figure 2, albeit on a different time frame. Although the market had anticipated a 120,000 job boost in payrolls on November 4, 2005, the U.S. economy actually added only 56,000 jobs. Within the first 25 minutes following the announcement, the disappointment caused the dollar to lose about 60 pip value relative to the euro.
The gains were swiftly undone, though, by the dollar’s strong upward momentum. Within an hour, the EUR/USD had broken through its prior low and had actually sunk to a 1.5-year low versus the dollar. Although there were several opportunities for breakout traders, the dollar’s bullish momentum was so strong that the poor payrolls report was unable to sustainly halt the currency’s rise. One thing to remember is that a strong move should see a strong extension when supported by a strong number.
The following chart shows the hesitancy and uncertainty preceding the October non-farm payroll figures, which were announced in early November, with two horizontal lines forming a trading channel. Take note of the rise in volatility following the announcement of the figures.
As we have stated previously, trading news is more difficult than one may imagine. How come? The main cause is unpredictability. Even if you are taking the correct action, the market might not have the momentum to support it.
As an illustration, let’s examine the chart in Figure 3. To illustrate how challenging trading news releases can be, this chart displays activity following the identical release as the one in Figure 2, albeit on a different time frame. Although the market had anticipated a 120,000 job boost in payrolls on November 4, 2005, the U.S. economy actually added only 56,000 jobs. Within the first 25 minutes following the announcement, the disappointment caused the dollar to lose about 60 pip value relative to the euro.
The gains were swiftly undone, though, by the dollar’s strong upward momentum. Within an hour, the EUR/USD had broken through its prior low and had actually sunk to a 1.5-year low versus the dollar. Although there were several opportunities for breakout traders, the dollar’s bullish momentum was so strong that the poor payrolls report was unable to sustainly halt the currency’s rise. One thing to remember is that a strong move should see a strong extension when supported by a strong number.
The above chart demonstrates how the strong momentum of the US dollar was able to seize control and drive lower, even though the less-than-expected non-farm payroll figures briefly caused the EUR/USD rate to rise. Remember this when the value of the US dollar relative to the EUR is rising.
