FXCM TR has compiled a list of the most
common questions regarding trading on news. Here is what our trading
specialists had to say...
Why are economic events important to currency traders?
A currency is a proxy for the
country it represents, therefore the economic health of that country is priced
into the currency. Economic indicators measure the health of an economy. The
challenge is keeping track of each particular country's economic health.
Know when indicators are due to be released. It is important to keep an eye on
the future and knowing which news releases the market deems most important.
Why are some indicators more important than others?
Current market conditions will
influence which news the market deems most important. Know which economic
indicators are capturing most of the market's attention. When the US is
incurring large trade deficits, the market will focus on Trade Balance data.
Its news release can catalyze large volume and price movements. Moreover,
during an US economic boom with high employment, the market will not focus on
unemployment.
Economic conditions can change. Large US Trade Deficits can weaken the US
Dollar over time. When the US Dollar is weak the market will shift its focus to
inflation. Market watchers will shift focus to CPI and FOMC Interest Rate
Decisions in the news.
What is the significance of "actual versus consensus"?
The data itself is not as
important as whether or not it falls within market expectations. Know when the
data is released in addition to what market forecasters are expecting for each
indicator.
Once you know the market expectation for the economic indicator, pay attention
if the consensus number is met. A drastic difference between the consensus and
actual results can cause price movement.
The consequences of an unexpected monthly rise of 0.3% in the Consumer Price
Index, the Actual, is not nearly as important to your short-term trading
decisions as it is to know that this month the market was looking for CPI to
fall by 0.1%, the Consensus.
Wait until after you've taken advantage of the short term trading opportunities
presented by the data, typically within the first thirty minutes following the
release, to analyze the longer-term ramifications of an unexpected monthly rise
in consumer prices.
Remember that market expectations for all economic releases are published on
our economic calendar.
Why should technical traders pay attention to news releases?
Technical analysis will not work
when fundamental factors or economic data becomes the main focus of the market
as participants become sensitive to any developments. With speculation mounting
on the possible outcomes, fundamental news releases like US non-farm payrolls
have created situations in the market that do not adhere to technical analysis
as volume and volatility spikes. Although the aftermath more than not will once
again adhere, the mass speculation that ensues makes sure that traders are
scrapping for the best price available in filling their positions rather than
applying your everyday moving average or price oscillator. |