In the previous article where I wrote on how to combine trading with your full time job, I mentioned that I also invested most of my free time reading the news events that affect the markets. Even if you say that you are not much of a fundamentalist, it is important that you pay attention to economic indicators and Forex news events. Quite frankly, I am not so much of a News fan but hey, it’s part of the business to understand a bit of fundamentals at least.
If as a trader, you understand the impact of a major news event, you can position yourself to capitalize on these moves when they occur. More advanced traders also use leverage to bank in more profits during major News releases.
The image below shows how news releases can move the market in a split second. This trade was shared with the Forexlyfe Premium members sometime ago.
Some of these News events include;
1. Interest Rate Decisions
Banks give out loans to clients and institutions and charge a certain percent of the amount as interest. The amount charged in addition to the amount loaned is known as the interest rate.
In simpler terms, it is the amount of interest that is paid by a borrower for the loan of an asset.
The Central Banks of the world’s economies have the task to determine what interest rate the economy holds. Based on several economic data like inflation, unemployment, exchange rates and more, they meet monthly to decide whether to increase, decrease or leave the rates unchanged.
Traders always look out for the outcome of the rates decided as it determines the value of the currency of the economy.
I currently live in the UK and let’s say I want to invest $1,000,000 in the US economy. If the economic calendar reads that the interest rates have been increased, I would go to my chart to look for an opportunity to buy the USD.
Higher interest rates raise the value of the currency, meaning that when the rate is increased, on the charts, the currency of that economy would be bullish.
If the interest rate is decreased, the value of the currency in question would depreciate, causing traders or investors to sell the currency of that economy.
If however, the rates remain unchanged at the time of release, it can either be bearish or bullish.
2. FOMC (Federal Open Market Committee)
This is the arm of the Federal Reserve bank responsible for making decisions regarding long and short term monetary policies. This report is released monthly. It records the monetary policy of all aspects of the economy and how individual sections see the value of the USD majorly.
Traders look forward to the release of this report. If you are a new trader, it may be difficult for you to understand this as the volatility can be really massive and overwhelming. One long spike can wipe out your trading account if you are on the wrong side and if you do not use proper risk management.
The image below shows one of the past FOMC releases shared with the Premium members. See how long the market consolidated before it finally broke out in one long spike. If you pay attention to the news and your technical analysis is also in line with what the news report is, you will most likely have a profitable trade.
3.Non Farm Payroll (NFP)
This is another major event you should pay attention to as a trader. It is released once a month by the Bureau of Labor Statistics (BLS)
It represents and measures the number of jobs created, excluding farm employees, government employees, private organization employees and employees of nonprofit organizations.
It is a key determinant of the health and productivity of the US economy and the labour market in particular.
The news released is published every first Friday of every month.
If you are a fan of trading USD pairs, you need to be attentive to the NFP. The news affects the US Dollar, meaning that currencies like EURUSD, USDJPY, GBPUSD, AUDUSD, USDCHF, USDCAD and others are mostly affected. Just as other news releases, market analysts and economists forecast and give their reports to help investors speculate possible future rates.
4. CPI (Consumer Price Index) Inflation Rate
This is used to measure the various economic data points like transportation, feeding, health, education and more to know if the economy is experiencing inflation or not.
The collation of the consumer prices accounts for a majority of the overall inflation.
For instance, let’s say in 2020 I bought a bag of rice at $100 but today the same 1 bag of rice costs $200. It shows that the inflation rate in that aspect is high. If the same is true for other sectors of the economy, the index gives information about this.
The Central Banks look out for this release to help guide them in their interest rate decisions and policy settings.
Increase in price of consumer goods could lead the Central Bank to raise interest rates.
Before the data is released, there’s usually a forecast from economists and market analysts speculating increase or decrease in inflation. The Forex factory platform gives data on the previous release and the forecast. This news event cuts across all currency pairs. It’s possible to have the CPI data released on the Canadian Dollar today and then the next day, it is released on the GBP currency. Because the USD is at the center of all other currencies, most traders look out for it.
5. The Reserve Bank of New Zealand (RBNZ)
If you follow me on IG @fx.professor, you may have noticed that I like to trade the EURNZD a lot. So it is important for me to keep an eyes on this major news event as well as it directly affects the New Zealand economy.
The report records the control of the overall money supply and it works towards maintaining price stability, promote economic growth and employ strategies to maintain efficient financial system.
The news is released monthly. You can keep a watch on the economic calendar like the Forex factory to note down when it is released.
Currencies paired with the NZD are mostly affected by this news event.
Generally, when a News release is positive, it signifies strength for the currency of the economy. Meaning that you should look for an opportunity to buy that currency. However, if the News release is negative, your job as a trader is to look for an opportunity to sell the currency.
No doubts, trading major news events is profitable if you know how to play your cards well. However, I recommend that you have a good understanding of how the News data works before you trade them. Do not be among those who jump in blindly on every high impact news they see.
The market is not running away. So it is in your own best interest to take your time to learn how it works before trading the News.
I’d like to hear from you. Please share your thoughts on this post in the comments below. If you have questions, kindly contact me here.