The answer to your question has to be a long one because there are many factors involved when trading on the basis of news releases. Consequently, I will post one part of the answer now and add the second part after couple of days, and the third and final part just before the weekend.
Remember that the currency market is made up of a complex set of relationships between different currencies. Some may not be so obvious to the casual trader, an example of this would be currencies which correlate unexpectedly with other currencies, where one may end up zeroing out any potential profits, or doubling risks.
I mention this because a good trader should keep this fact in mind whenever an attempt is made to analyze the market. So the implication here is that in order to make a sound analysis regarding the repercussions of news releases, a trader has to be informed about other currency pairs, aside from their currency of interest period
Most traders agree that there are eight currencies, which a savvy trader should keep tabs on. Note that these are just the most significant, and represent the minimum basket of currencies involved in a competent analysis. These currencies are the Japanese yen, the US dollar, the Swiss franc, the Euro, the Australian dollar, the New Zealand dollar, the British pound and the Canadian dollar.
The savvy trader must always be on top of developments in use regarding these currencies. It is important to note that aside from knowing the date of when important news is going to be released, the difference between the actual result and the whisper values or numbers is extremely important in forecasting how the currencies will react to the actual news. Whisper values are merely estimated or expected values which are simply the numbers which everyone expected to appear.
In the next installment of this answer, I will cover the important news and figures to monitor, and when they usually appear.
In the second part of the series about trading news, which by the way is a bit late because it skipped my mind that I would be monitoring the G 20 this week, we will look at the important times where you should be keeping your ears glued to the news reports. All the times mentioned here are Eastern Standard Time.
News releases by country:
1. US – 830 to 1000
2. Japan – 1850 to 2330
3. Canada – 700 to 830
4. United Kingdom – 200 to 430
5. Italy – 345 to 500
6. Germany – 200 to 600
7. France – 245 to 400
8. Switzerland – 145 to 530
9. New Zealand – 1645 to 2100
10. Australia – 1730 to 1930
So those are the times when you should be watching out for news about these countries. Now the next question is, what are the important data you should watch out for. As far as economic releases are concerned, you should be watching out for the following:
1. Interest rate decision
3. Business sentiment surveys
4. Retail sales
5. Industrial production
6. Inflation rates, consumer price or producer price
7. Manufacturing sector surveys
8. Consumer confidence surveys
9. Trade balance
Keep in mind that if you want to be a well-informed broker as far as trading news is concerned, then you must monitor all of these currencies, and all of these economic events. It may seem like an overwhelming thing to do, but many brokers have what is called an economic calendar on their sites. You can have alerts about forthcoming events sent to you, but as far as unexpected news is concerned, you have no choice but to listen or read about then use during those times mentioned above. Besides, it can only make your trading better because it will give you a better feel for the market.
In the next installment, we shall look at the trading implications of news releases. In this last part about trading news releases, let’s look at the implications whenever key economic figures are released.
First I have to point out that even if you have been trading on news releases for several years, it is important to note that reactions may change depending on many variables, most notably the current conditions prevailing in the economy. This is why it is important to be in touch with in use since it will give you a feel on the markets pulse which will enable you to have a better idea of which figures are the major concern of the markets.
One question that is often been asked by newbie traders is how long would reactions to news releases last? There were studies made before, which attempted to determine this and while it was seen that the market effects were strongest during the first 48 hours after a news release, effects could still be observed going into the fourth day. So safe to say, you will be able to observe these effects during the first 96 hours after a news release.
Another question is how to proceed with trading the news. Generally most traders proceed to trade news by watching out for the consolidation period which usually precedes a big news release. They take positions and they trade the breakout assume us the news is released. Remember this is what most traders do so you must watch out also for a situation where market expectations become self-fulfilling prophecies.
In the past, one of the biggest factors which made trading the news a bit difficult, was the volatility factor. Today, this is even more pronounced because of a jittery world economy. So in order to avoid getting burned, make sure that you are protecting your positions with stops. Moreover, it is important to be able to develop a good feel for the pulse of the market, in the different countries that you’re trading.