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Many traders, regardless of the market they trade in, base their decisions solely on technical analysis and price charts, and forex news has no impact on their decision-making process. These traders completely disregard fundamental factors and instead focus on price trends, analyze support and resistance levels, and assess various signals from a technical standpoint.
However, fundamental analysis is as important in the modern trading world as technical analysis. The release of important news such as income reports and interest rate changes can significantly affect the markets. Therefore, forex news trading can be very beneficial for traders, and incorporating economic announcements into their strategy can considerably enhance their approach, as you’ll learn in this Forex tutorial by Brokerland. Discover how to trade the news and identify potential trading opportunities in financial markets.
What Are the Most Important Forex News?
To trade the news, you should be familiar with economic indicators, which are macroeconomic factors that influence all financial markets, including forex, stocks, and indices. These can include changes in interest rates, inflation, unemployment rates, or income for a specific country, all of which have a significant impact on financial markets and the overall economic situation.
Economic announcements usually encompass these specific factors when recommending recent changes in the markets, which can influence market sentiment, especially if the data doesn’t align with traders’ expectations. Traders usually use them for forex news trading.
Forex News Trading
Forex news trading is a strategy that involves making trades based on market expectations both before and after the news release. Trading on news announcements can compel you to make quick decisions, as financial markets can be almost immediately affected. Therefore, you need to be prepared to make fast judgments about how to trade the news.
When trading in the forex market, it is important to be aware of how financial markets operate. Sometimes, news is already priced into the asset’s value. This happens because traders try to anticipate future news announcements, causing the market to react by changing the asset’s price. To trade the news, especially in volatile markets like the oil market, can be beneficial.
The forex news in the market can become active both before and after important economic events. However, there are significant differences between the type of news that distinguishes currencies from other financial markets.
Forex markets mostly respond to macroeconomic news, reflecting or affecting broad economies. Generally, traders can assess economic news to evaluate its impact on interest rates and monetary policy.
Currencies of countries that are major exporters of commodities or goods can be influenced by forex news because it affects the prices of the commodities they produce. These currencies are often referred to as commodity currencies.
Let’s take a look at the supply and demand discussion. On the supply side, news indicating lower supply can drive prices higher, while ones indicating increased supply can reduce prices and may impact related currencies. News that can reflect changes in supply may cover various factors such as political tensions, war, terrorism, weather, economic sanctions, labor relations (strikes), and more. Commodity futures trading and demand pricing are mainly influenced by many of the same major events mentioned above, along with reports and inventory outlooks.
To follow and trade the news, you can use major and reputable websites like Forex Factory, and always try to keep your information up to date. An economic data release typically includes details such as the date, time, name of the economic event, previous result, market expectations or forecasts, and actual data. In addition, in many economic calendars, you can see the importance or impact rating assigned to a specific event (as shown in the image below).
How to trade the news?
To achieve a comprehensive trading strategy in forex using important forex news releases, traders look for key forex indicators that can influence interest rate expectations and currency exchange rates. These indicators include:
- Central bank decisions and speeches.
- Inflation rates
- Gross Domestic Product (GDP) figures.
- Employment figures.
- Trade balances.
Market sentiment-related news can also affect currency trades, especially those considered safe havens, including gold and major currencies such as USD, JPY, and CHF. These currencies tend to attract capital during times of market turmoil.
The most critical forex news events that can impact risk-on and risk-off trading include stock market returns and volatility, national or continental-level financial stress, political turmoil, elections, treaty negotiations, and other broad news events beyond economic data and central banks. Recent examples include the Greek debt crisis and the Chinese market turmoil.
Predicting Forex News Trading
Traders should understand that demand for many commodities, and consequently their prices, fluctuates with the seasons. Forex news and the effects of seasonal trading are seen in energy and agricultural commodities, but are less noticeable with precious metals. The table below shows some major currency pairs and the commodities they are influenced by. This can be used by traders as a type of forex news trading signal, as it can help predict currency prices.
In conclusion, forex news trading can be a viable strategy, but it requires careful consideration of economic indicators, central bank decisions, and overall market sentiment. Traders should stay informed about important news releases, understand the context in which they occur, and use them as part of their strategy to trade the news.
|Country||Currency Pairs||Influential Commodities|
|USD/CAD||WTI، Crude Oil, Metals|
|Australis||AUD/USD||Base Metals, Wheat|
|New Zealand||NZD/USD||Dairy Products|
|South Africa||USD/ZAR||Precious Metals|
|USD/RUB||Crude Oil, Natural Gas, and Metals|
Benefits of Trading News
Let’s talk about the good points that make it popular to trade the news.
It can help increase volatility: Some significant economic announcements can create higher market volatility, even if it’s for a short period. Even the latest Forex or stock chart patterns can temporarily be influenced by a noteworthy trading announcement, such as the latest unemployment news or changes in interest rates or inflation rates by a central bank.
Paying attention to the timing of trading announcements can mean that you are ultimately executing a well-planned and precise trade right before a major event, which can immediately protect your losses. You might have to wait after significant forex news events for new positions to open and then see if the reason for the trade is still valid or not.
Forex news trading can create unexpected market reactions: Usually, among leading economists, there is a consensus on where an economic announcement is likely to end up. Changes in non-farm payrolls, Gross Domestic Product (GDP), or inflation data are some of the most critical Forex news, and they will affect the market.
For example, a low unemployment rate indicates a strong economy, so many expect that the stock market will increase. Decisions to lower interest rates may lower a country’s currency attractiveness and lead to its fall against other global currencies. However, sometimes economic news will be very different from what the market expects, and this can cause a market’s reverse reaction.
For example, if a central bank suggests that a possible interest rate decrease may be on the way but the currency is still increasing, other factors may exist besides the prospect of interest rate changes. This, in turn, can be a strong signal to buy. If the currency doesn’t decline as expected with the anticipation of a decrease in interest rates, strong positive sentiment exists, and that may indicate that the market is buying.
It can indicate trend changes: Many traders try to identify trends based on news in the hope of profit to trade the news. Such trends can be variable within minutes, days, or even months. However, most trends will reverse, and changes in the fundamental economy can be the first sign of a changing sentiment. This gives traders an opportunity to open a position at the beginning of a new trend.
Risks of Trading News
However, there are also disadvantages to forex news trading. In particular, you need fundamental analysis skills to trade the news as you need to know how certain economic announcements can impact your position and the broader financial market.
There is also the risk of holding positions for a more extended period. If the release of news requires days or weeks to happen, your intraday trading positions may remain open for an extended period, which can require you to pay additional holding costs. Therefore, traders need to ensure that they have sufficient funds in their accounts to cover these costs when they decide to trade the news.
In conclusion, forex news trading is a dynamic and high-stakes strategy that offers immense potential for traders seeking short-term profits. By harnessing the power of economic events and staying well-informed about global developments, traders can capitalize on price fluctuations in the currency market.
However, it is essential to approach news trading with caution and employ effective risk management strategies, as the market’s rapid and unpredictable nature can result in substantial losses as well. Ultimately, successful traders requires a delicate balance of market analysis, timely execution, and a thorough understanding of the ever-evolving world of global finance to trade the news.
Forex news trading is a powerful strategy that can offer both significant advantages and potential pitfalls to traders. It has the potential to capitalize on increased market volatility, create opportunities for unexpected market reactions, and provide valuable insights into changing trends.
However, it requires a deep understanding of fundamental analysis, and traders must be vigilant about market conditions, as well as the potential for extended open positions that may incur additional costs.