Forex and News

Forex News trading is taking advantage of the anticipation reaction and follows through of major

news events. Major news events are events which significantly alter what market we already know of.

Events such as natural disasters and war. And more importantly so the release of events, each and every

major country has something called economic indicators, these indicators reflect weather a country is

doing well, and what sector is doing well. This information is released in an organized predetermined

factor months in advanced.

Why bother with news trading?

There are certain news events that are priced into the market, but there is a surprise factor that

causes a change and a reaction which could be used to tell you where the market is headed. Forex news

trading is time based, if news are set to be released by a certain time, one can prepare for such in an

also organized fashion, it gives quick results, and that coupled with Se times, it can give low risk and high

reward setup, One risks for example 20-30 pips with a target of 2 or three times that. It also provide

with a higher profit factor. Define Profit factor.

Types of News Trading

Pre-Event trading – Mainly sentiment based, pre-event trading operates on creating an anticipation

that news will be wonderful/bad based on what the market sentiment is about. There are many

companies who focus on market research in mainstream media, with the main purpose of predicting the

possible outcome of the news. They give the information before hand and usually have an accuracy of

about 80%, these provide no pressure entries, but on the other hand these require a high amount of

knowledge and experience on handle.

Event-Trading – Many traders would rather not deal with the sentiment leading up to the release of

the news, But rather choose to trade on the event itself, thus leading to a lower Profit risk factor,

Meaning that the profits can be lower and the risk of losing money is lower also. This applies to the

entire market, but it is significantly important in Foreign exchange now that it causes very distinct

fluctuations.

Post-Event trading- This type of news trades focuses mainly on longer terms profits, assuming that a

certain event will affect a currency pair positively/negatively throughout a longer period of time.

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Analysis of Past Press Releases’ effect on the Market

A few Examples of market behavior in reaction to news releases can be seen below.

Retail Sales

Retail sales figures for the United States in relation to the EUR/USD chart had a very

distinguishable pattern that followed through 4 straight repetitions during the research for this project.

By looking directly at the date of release in relationship with the behavior of the market the following

was noticed: a higher than expected percentages favoring the US currency and smaller than average

percentages lowering the price of the dollar.

Figure 9: Retail Sales

(www.ForexFacroy.com/calendar.php)

Every time the figure was green (raised the value of the dollar), we see a negative candle stick in

the EUR/USD and on the contrary, every time we see a red figure above (lowers the prize of the dollar),

we can see a green bar in the EUR/USD chart.

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Figure 11: Market Behaviour to News Speech

European Forex Economic Calendar

The following analyses based on the European Forex Economic calendar shows how certain press

releases affected the market.

7 February 2013 – Monetary Policy Decisions

On the 7

th

the ECB decided to keep interest rates the same. Decisions to keep interest rates

unchanged suggested that the Euro economy was still struggling and the ECB would be trying to help out

the economy by not changing interest rates. This news would affect the euro negatively since buyers of

a currency are attracted to currencies of reliable economies.

At the very moment this news was released the euro was still going strong which was somewhat

worrying for the weak economy and its recovery due to possibility of hurting exports. Later that day

Mario Draghi said in a news conference that the door is open to stimulus measures if needed by Europe.

Suggesting that if necessary Europe just like Japan would take part in monetary easing to bring the value

of the euro down, however according to articles from the WSJ that would have been just a method he

was using to talk down the euro which indeed worked.

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(Blackstone)

The graph bellow of EUR/USD in the 30 min timeframe shows a drastic fall in the EUR caused by Mr.

Draghi’s speech and the ECB decision to keep interest rates unchanged.

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Figure 12: Market Behaviour to GDP

Looking at the chart it is noticeable that if one were to closely follow the news there would be enough

time to react to it and make profit after these announcements.

14 February 2013 – Germany GDP for 4

th

Quarter

Another important Economic Release that Affected the forex market was the seasonally and

calendar adjusted German GDP for the 4

th

quarter of 2012. Germany is the main Drive in European

Union economy, thus news relating to Germanys economy have great influence in the euro. It was

predicted that there would be a contraction in GDP for the 4

th

quarter however the contraction was

larger than predicted, causing a bearish market for the euro. The effects of this news are demonstrated

in the chart below by the circled area on the right.

19

(Economic Calendar)

20 February 2013 EUR Consumer Confidence

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On February 20

th

the consumer confidence was released by the European commission which

was lower than the predicted consumer confidence.

9

(Economic Calendar) This news would affect the

Euro negatively and that is exactly what it did. The chart below shows how the Euro went down

considerably. In the chart we can also see that if one were to follow the news in a timely manner there is

enough time to react and make profit.

Figure 13: Market Behavior to Consumer Confidence

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In document FOREX Trading and Investment (Page 36-41)