News trading important news. Trading High Impact Forex News – Don't Get Caught Out
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However, just like not all fingers are not the same, not all macroeconomic news events have a similar impact on the market. If you have opened an economic calendar, you can already see which news higher impact on the market and others that you can easily ignore. So, out of the hundreds of news releases, how do you know which news events you should keep an eye on? The good news is, just like the Pareto principleonly a handful of news releases are responsible for the bulk of the price movement for most currency pairs.
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Some of these news events are common for almost all currencies and if you can just understand how these affect your favorite currency pair, then you will be far ahead as a trader than most novice traders who are only looking at a chart.
This expectation of higher inflation and higher interest rate is highly correlated with a low unemployment rate. Hence, unemployment rate acts as a leading indicator of future monetary policy decisions. It measures the overall health of an economy and the higher the GDP growth rate, the stronger the currency would be.
However, often one overtakes each other. You do not need to be an economist to understand how inflation affects a given set of currency news trading important news, but some basic understanding would help you go the extra mile. You see, most central banks have a monetary policy that tries to limit inflation rate to a certain predefined range.
Trading High Impact Forex News – Don't Get Caught Out
When inflation goes above this range, central banks usually increase the interest rate to curb down inflation. Most central banks try to limit inflation rate to 2. So, if you are trading the U. Dollar and want to anticipate the future interest rate landscape, use the PCE index. Nevertheless, anytime you see a forecast of growing CPI, it would be bullish news for the currency.
Central banks try to influence the overnight rate by lending in the money market at their own overnight rate and it is an important tool in their monetary policy arsenal.
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Overnight interest rate is the key reason prices fluctuate in the market as it also affects the swap rate. In fact, many traders think that the main purpose of fundamental analysis is to predict future interest rates of major central banks.
While understanding monetary policy is difficult, even for veteran economists, the way to interpret this news is rather easy. If you see a forecast that says the Federal Reserve will likely increase the overnight rate, it will likely have a bullish effect on the U.
Nonfarm Payrolls NFP Data The nonfarm payrolls figure measures the number of additional jobs added from the previous month in the corporate sector in America, which is an important leading indicator of the overall employment situation in the country. Dollar is the de facto reserve currency in the world and the nonfarm payrolls data is usually released on the first Friday of each month by the U.
While there is not an equivalent data release in every economy, you should definitely keep an eye on the U. NFP as it will eventually have major impacts on almost all currency pairs involving the U. If you see the forecast of the NFP is higher compared to last month, it is bullish news for the U. There is a strong correlation between the currency market and oil price because of how resources are distributed. Hence, it can affect the balance of trade BOT of a currency, and influence market psychology.
You see, Crude oil is quoted in U.
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Hence, any national currency of binary options reversal trading country that has a large crude oil reserve will be impacted by the crude oil price. Furthermore, low energy price means more disposable income will be left to consumers and it can create demand for goods and services, boosting sales.
But it may not have a significant impact on the Japanese Yen because Japan does not have large oil reserves. While it is difficult to analyze what would be the impact of oil price on a given currency, knowing and understanding news trading important news impact by reading detailed analysis can help you sense the pulse of the market and make better trading decisions.
The same happens when trading stocks, during the open of the markets.
When consumers feel safe and secure about their jobs, they tend to spend more on durable and non-durable goods, which boosts transactions and creates value. In terms, retail sales can be a pretty good indicator of future the GDP growth rate. How retail sales are influencing it can give you an edge in the market because you can predict GDP growth well before the quarterly reports!
However, analyzing retail sales is somewhat tricky because it is also dependent on wage growth and overall productivity level in the economy. Therefore, before analyzing retail sales data, you have to keep in mind that while increasing sales can lead to inflation, it can also indicate overconfidence in the economy.
After all, if productivity and wages are not growing, but only retail sales go up, it can also indicate that people are buying things to stock necessary items because they expect a slowdown in the economy!
In the news trading important news, the rule of thumb is, if retail sales go up of one country and it is the base currency of the pair, but it remains stagnant in another which is news trading important news quote currency, it will be a piece of bullish news for the base currency. The survey asks managers to rate what is their perspective about the business over a 6-month period if they plan to hire new workers or reduce the size of the workforce, and things like option shelving inventory level to fill new orders.
The way to interpret the PMI is keeping an eye on if the number is above or below If it is below 50, it indicates there might be a recession coming and if it news trading important news over 50, then the economy is expected to expand. During the normal growth period, the PMI usually hovers near 55 to 60, but the trick is to see if there is a trend.
If you see PMI consecutively going up over the last few months, consider it to be bullish news for the associated currency. Just think for a second, when would you buy a house or start a major remodeling of your kitchen? The answer is when you have ample savings or expectation of stable income, right? So collectively, when the prices of houses go up or sales of housing units go up, it is common sense to interpret it as a sign of strength in the economy.
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Also, new housing projects employ a large portion of the workforce that can reduce unemployment and prompt central banks to increase the interest rate. As a result, when you see positive housing data, consider it to be major bullish news for the currency. For example, if you see Housing Startsthat counts the number of new housing units being built, going down, it can signal a slowdown in the economy and traders will interpret it as bearish news for the U.
- John Russell Updated June 25, If you are a forex trader that believes that moves in currencies reflect the fundamentals, it's important to keep your finger on the pulse of forex news.
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However, if you are just starting out and wants to feel the pulse of the market, the 5 economic news releases we discussed should act as a good starting point.