Many Forex traders like to trade the news. This can be a dangerous strategy and any account can be ravaged by the volatility thrown up by a major news event that doesn’t go as expected. Of course, no-one can accurately and consistency predict the future, but traders who protect their downsides and manage their money resolutely can take advantage of the comparatively large movements that often take place in a short space of time following these releases.
With eight major currencies – the US dollar (USD), Euro (EUR), British pound (GBP), Japanese yen (JPY), Swiss franc (CHF), Canadian dollar (CAD), Australian dollar (AUD) and New Zealand dollar (NZD) – and not to mention derivatives and some platforms allowing trading in more exotic currencies, you can bank on there being multiple news announcements every day that will affect the market in one way or another. Some are far more important than others, however. Whichever currency forms the other side of the pairing, the USD is by far the most widely traded currency. This may give news releases related to the US economy more importance than other markets but events elsewhere can also have major impacts within individual markets and the performance of different currency pairs.
Some of the major news releases you should look out for include:
The Central Banks representing each major economy meet each month to make a decision on whether to raise interest rates, lower them or leave them unchanged. In general, an increase will be bullish for the relevant currency, seeing it increase in value and a decrease will be bearish. The actual decision is extremely important, of course, but so is the market expectation preceding it and the accompanying policy statement issued by the Bank.
Gross domestic product or GDP is defined by the OECD as “an aggregate measure of production equal to the sum of the gross values added of all resident institutional units engaged in production (plus any taxes, and minus any subsidies, on products not included in the value of their outputs).” It essentially attempts to capture and express the size of an economy and when it exceeds expectations a currency can generally be expected to increase in value. When it falls below expectations, the reverse can be expected.
Inflation indicators such as the Consumer Price Index are also useful for market watchers and Forex traders. Central Banks will often use the data provided to inform their own rate policies, as interest rates can be used to counteract inflation in either direction.
The unemployment rate is a very important indicator as to the overall health of a given economy. Other job data such as the total number of jobs provided in the US non-farms payroll report, which can be used to extrapolate the gain in new jobs from the previous month, are also very important.