News releases, especially economic, is one of the most important strategies to trade for the Forex traders. Due to the global nature of the currency market as well as deep impact of primary economic factors on it, several traders consider Forex news vital for making profits. Usually, news items such as Gross Domestic Product numbers and central banks’ interest rates trigger big changes in this financial market, particularly when they vary largely from the earlier expectations of the market.
Forex Trade after a News Release
The ideal way to trade based on Forex news is to seek a period of consolidation just before a big number and trade the breakout behind the number, which is done on a daily or short-term intraday basis. For example, after a low number in August, the market might become conscious of the September number, which was then released in October. In the 16 hours prior to the release, the EUR/USD was restricted to a trading range of tight 20-pips. Now, this offers a good chance to put a breakout trade due to high chance of a sharp move at that moment.
Let us consider another scenario wherein for the month of January, the market expects around 150,000 jobs to be included to the U.S. economy but only 60,000 got added. This results in around 40-pip sell-off in dollar, in the first half hour after the news. Nevertheless, the strong upside momentum of dollar quickly reversed the gains and after 60 minutes, EUR/USD got a 2-year low against the dollar. This indicates that on the good number’s back, a strong move must observer a strong augmentation.
A few traders position themselves on both market sides via a hedged position, prior to a significant release. They wait for the release number and then trade out of the position due to which they might see a loss on one side after a number release and hopefully a profit on the other side of the trade. Herein, the trader goes both long and short for the same pair prior to economic number release.
Once the number is released, she or he decides how to come out of the two-sided position. If the number is good, profits are made first on the trade, which allows the other unprofitable side of the position to minimize the loss while the market corrects after reacting to the number. In case the number is unfavorable, the same follow up is done as the market declines by closing the victorious short position first followed by trading out of the trailing long side.
The Most Influential Forex News Releases
Before trading on news, it is essential to know the releases that are expected in that week. Even more important is to identify the news releases that are most significant for you to know. Generally, the vital economic releases include interest rate decision, unemployment, inflation, retail sales, trade balance, consumer confidence and business sentiment surveys, industrial production, and manufacturing sector surveys. Because of the relative disparity in terms of significance of these factors in different countries, it makes sense to keep an eye on what the market is focusing on currently.