How News Broadcasts can affect Forex Trading
One of the big advantages of currency trading is that the forex market is open 24 hours a day, five days a week.
Economic data tends to be one of the most influential catalysts for short-term movements in any market. This applies in the currency market which not only responds to US economic news, but also news from around the world.
There are eight major currencies available for trading in most currency brokers and more than 17 derivatives from them. There will always be several parts of economic data scheduled for release that traders can use to inform them of the position they are taking. Generally, no less than seven data are released every day from eight major currencies. Or countries that have the most news development. So for those who choose to trade following the market news, there are many opportunities.
Here, we observe the time when news appears, and which is most relevant to forex traders. And also how forex traders can act on this moving market data.
What currencies must be considered?
Here are the currencies that must be considered :
- US. dollar (USD)
- Euro (EUR)
- British pound (GBP)
- Japanese yen (JPY)
- Swiss franc (CHF)
- Canadian dollar (CAD)
- Australian dollar (AUD)
- New Zealand dollar (NZD)
And here is an example of a derivative based on this currency:
- EUR / USD
- USD / JPY
- AUD / USD
- GBP / JPY
- EUR / CHF
- CHF / JPY
As you can see from the list above, the currency that we can trade easily around the world. This means you can choose your own currency and economic news. However, as a general rule, because the US dollar is on the “other side” of 90% of all currency trading. News of the US economy tends to have the most tangible impact on the market.
Trading news is in fact more difficult not as it appears. Not only are consensus figures important, but also ‘wishper number‘ and previous news revisions. Also, some news is more important than others. This can be measured in terms of the significance of the countries that release data. And also the importance of news related to other parts of the data released at the same time.
When is the News Release Issued?
Figure 1 lists the estimated time (EST) in which the following most important economic releases for each country are published. This is also the time when you have to pay extra attention to the market if you plan to trade at the time of the news release.
What is the key to influential news?
In forex trading, you must understand the key to influential market news. When you trade based on existing news, you must first know which news is really waiting for that week. Second, it is important for you to know which data is important. In general, here are the most important economic releases for any country:
- Interest rate decision
- Retail sales
- Inflation (consumer prices or producer prices)
- Industrial production
- Business sentiment survey
- Consumer confidence survey
- Balance of trade
- Survey of the manufacturing sector
Depending on the current economic situation, the level of urgency of this news can change. For example, unemployment may be more important this month than trade decisions or interest rates. Therefore, it is important to stay focused on what is the current market concentration.
How long does the news effect last?
There are several things that need to be considered, namely how long the news effects take place. According to a study by Martin D. D. Evans and Richard K. Lyons (2004), the market can still absorb or react to the hours of news releases.
This study found that the effects on returns generally occur on the first or second day. The impact sometimes occurs until the fourth day. The impact on the order flow, on the other hand, is still very noticeable on the third day and can be observed on the fourth day.
How do I Actually forex trading follows the news?
Keeping up with the news when trading forex is important. The most common way to trade news is to look for a consolidation period ahead of a large number and only swap the breakout behind the number.
Let’s look at the chart in Figure 2 as an example. After a weak figure in September, the market held its breath ahead of the October figures to be released to the public in November. In the 17 hours before release, EUR / USD was limited in a tight 30-pip trading range.
Pip is the smallest measure of change in a currency pair on the forex market. The smallest change is from the last decimal point. For news traders, this will provide a great opportunity to trade a breakout, especially since the possibility of sharp movements at the moment is very high.
In figure 2 the increase in volatility occurs after the news is worse than expected.
We mentioned earlier that forex trading news is more difficult than you think. Why? The main reason is volatility. You can make the right move but eventually stop coming out or the market may not have the momentum to maintain that step.
Let’s look at the chart in Figure 3 as an example. This diagram shows the activity after the same release as shown in Figure 2. A different time span shows how difficult the trade news release is.
On November 4, 2005, the market estimated that 120,000 jobs would be added to the US economy, but instead only 56,000 jobs were added. This sharp disappointment caused around a 60-pip sell-off in the dollar against the euro in the first 25 minutes after the release. However, the momentum of the dollar’s rise was so strong that the increase quickly turned around. Within an hour the EUR / USD has broken the previous low and actually reached a 1.5-year low against the dollar.
There are very many opportunities for forex traders who breakout.
Because the bullish momentum in the dollar is very strong, finally the number of bad wages fails to give a good impression of sustainability in the currency rally. One thing you must remember is that, behind good numbers, strong steps must also pay attention to strong extensions.
Can I Avoid Losing by Volatility When Trading Forex by considering the news?
There will always be an option to avoid losses when trading forex. To get a breakout in volatility without having to face the risk of reversal is to trade the FOREX SPOT option. A number of different forex brokers offer a variety of interesting options called ‘exotic options’. Exotic options generally have a barrier level and will be advantageous or not profitable based on whether the barrier level is violated. Payments are predetermined and premiums or option prices are based on payments. The following are the most popular types of exotic options to use:
- Double one-touch option
- One-touch option
- Double no-touch option
Double one-touch option
There are 2 levels of barrier on the Double one-touch option. One of these levels must be violated before it expires so that the option becomes profitable and for the buyer to receive payment.
If no barrier level is violated before it expires, the expiration option is of no use. Double one-touch options are the perfect option for trading for news releases because this is a pure non-directional breakout game.
One-touch option has only one level barrier, which generally makes it a little cheaper than the one-touch double option. This is a good option to buy if you really have a view on market consensus estimates.
Double no-touch option
The double no-touch option is the opposite of the double touch option. This option is very good for news traders who think that the release of the economy will not cause an escape in a currency pair.
SPOT FX Option
The SPOT FX option is an alternative for those who do not care to get errors in the market with undue volatility before they actually see spot prices moving in the desired direction.
That needs to be the Underline
As we have seen, currency markets are very vulnerable to short-term movements caused by economic news releases from both the US and around the world. If you want to trade news successfully in the FX market, the main consideration to remember is knowing which release to expect. A variety of exotic choices are available for forex traders who want to capture the runaway in volatility. Of course without having to face the risk of reversal.