One of the key elements of understanding of currency pairs’ movement on the Forex market is a work on the trading news. The ability to work on the news is very important for both the novice traders and for the experienced ones, who seek to improve their trading skills.
Making daily trading strategy, a trader needs to analyze Forex news calendar for the upcoming trading period. In order to trade successfully on Forex news you need to:
- Know the approximate time period when we can expect strong news outlet;
- Understand how the market works on news release and how you can make a profit interpreting the news correctly;
- Associate news and technical analysis. You need to understand which news/data is important and which is not.
This is simple enough. A currency trading practice, which has evolved over the years, already has in its arsenal a number of economic factors that have a significant impact on the movement of exchange rates. Here are the most important of them:
- The decisions of central banks on interest rates;
- The rate of inflation;
- GDP and industrial production data;
- Indexes of business activity;
- Speeches of financial officials of a country (the most important news come from high-ranking officials of the U.S., the United Kingdom, European Union, Japan, Switzerland and Canada.
It is extremely rare when to the Forex market come unexpected news. As a rule, all the news coming out on the market are scheduled. Foreign exchange market is waiting for the release of the news and tries to prepare for them. Before the news will be released officially, experts publish their predictions about the possible behavior of exchange rates.
Possible market reaction to the news coming out might look like this:
- If the news meets expectations, the rate of a currency will not change significantly;
- If Forex analysts have made a correct prediction, but the full implications have not been evaluated by the behavior of the market, the exchange rate will continue to move in a given direction but there may be an increase in the movement of exchange rates;
- If the Forex experts have made incorrect predictions, the exchange rate will change its direction and begins to move in the opposite direction.
Analyzing how the fundamentals affect exchange rates, be sure to take into account the direction of the trend. When the news came out against the trend, this suggests that the impact of such news would not be for a long time and will last only a few hours. If the published news coincides with the prevailing trend, this suggests that the trend will accelerate its movement.
When Forex market news come out, you should keep in mind that the maximum benefit of fundamental analysis can be achieved only in the case if its data are combined with data of technical analysis.