Trading Forex Using News Releases

Being able to trade currencies at any time of day or night, seven days a week, is one of the many benefits (from Sunday, 5 p.m. until Friday, 4 p.m. ET). Economic data is frequently the most significant motivator for short-term swings since markets respond as a result of news. This is especially true in the currency market, which reacts to both domestic and international news in addition to U.S. economic data. Here, we examine when economic data is issued, which statistics are most pertinent to forex traders, and how traders might react to this information that could influence the market.

Before you begin to trade the news releases. It is important to find a good reputable broker that is looking out for your trading needs. WikiFX allows traders to research and verify brokers via their app or website. This is especially useful when trading news, as brokers take that opportunity to scam their clients. WikiFX will prevent this by providing traders will the information needed so that brokers cannot scam you.

Which Currencies Should You Pay Attention to？

Most currency brokers provide at least eight main currencies for trading, so there is always some economic data coming out that forex traders may utilize to make smart bets. In reality, the eight biggest nations with the most followers disclose seven or more bits of data practically every day of the week (unless on vacations). Therefore, there are several prospects for individuals who wish to trade news. The majority of traders are familiar with the eight main currencies:

1. U.S. dollar (USD)

2. Euro (EUR)

3. British pound (GBP)

4. Japanese yen (JPY)

5. Swiss franc (CHF)

6. Canadian dollar (CAD)

7. Australian dollar (AUD)

8. New Zealand dollar (NZD)

And there are many liquid currency pairs derived from the eight major currencies:

1. EUR/USD

2. USD/JPY

3. AUD/USD

4. GBP/JPY

5. EUR/CHF

6. CHF/JPY

The world is filled with easily exchanged currencies. This implies that you may specifically choose the currencies and economic reports you want to pay attention to. However, because the U.S. dollar is on the “other side” of 90% of all currency exchanges, generally speaking, U.S. economic news tends to have the biggest effects on forex markets.

It's tougher than it sounds to trade news. The whisper figures, or the unofficial and unpublished projections, as well as any updates to earlier estimates, are equally as significant as the declared consensus figure. Additionally, certain data releases are more significant than others; this may be determined by looking at the importance of the nation that released the data as well as the value of the release in relation to

When Do Important News Releases？

The most significant economic announcements for each of the following nations are listed in Figure 1 with their approximate timings (Eastern Time). Additionally, this is the period when participants in the forex market pay closer attention to the markets, particularly when trading in response to news releases.

Country Currency Time (EST)

U.S. USD 8:30 to 10 a.m.

Japan JPY 6:50 to 11:30 p.m.

Canada CAD 7 to 8:30 a.m.

U.K. GBP 2 to 4:30 a.m.

Italy EUR 3:45 to 5 a.m.

Germany EUR 2 to 6 a.m.

France EUR 2:45 to 4 a.m.

Switzerland CHF 1:45 to 5:30 a.m.

New Zealand NZD 4:45 to 9 p.m.

Australia AUD 5:30 to 7:30 p.m.

What Releases Are Important？

Understanding which releases are truly anticipated that week is the first step in trading news. Second, it's crucial to understand which facts are crucial. In general, data on changes in interest rates, inflation, and economic growth, including retail sales, manufacturing, and industrial production, are the most significant:

1. Interest rate decisions

2. Retail sales

3. Inflation (consumer price or producer price)

4. Unemployment

5. Industrial production

6. Business sentiment surveys

7. Consumer confidence surveys

8. Trade balance

9. Manufacturing sector surveys

The relative relevance of these releases may alter based on the situation of the economy at the time. For instance, this month's trade or interest rate choices might not be as crucial as the unemployment rate. As a result, it's critical to stay up to date with the market's current priorities.

How long is the impact of news on the market？

Martin D. D. Evans and Richard K. Lyons' study, which was published in the Journal of International Money and Finance in 2004, suggests that the market may continue to take in or respond to news releases hours, if not days, after the figures are issued.

According to the study, the influence on returns often happens on the first or second day, although it does continue to be felt until the fourth day. On the other hand, the influence on the flow of buy and sell orders is still highly noticeable on the third day and is discernible on the fourth day.

How to Trade News Actually？

Finding a period of consolidation or uncertainty before a large figure and trading the breakout on the back of the news are the two most popular ways to trade news. This might be carried out over a short period of time (intraday) or several days. Let's use Figure 2's chart as an illustration. The euro was holding its breath in anticipation of the October number, which was scheduled to be made public in November after a dismal September result.

In the 17 hours leading up to the announcement, the EUR/USD pair was restricted to a narrow 30-pip trading range. The final decimal point represents the smallest change in a currency pair (a pip is the lowest unit of change in a currency pair on the forex market because the majority of major currency pairs are priced to four decimal places). Given the high potential of a big rise at this point, news traders would have loved the chance to take advantage of this and place a breakout trade

The following chart demonstrates the ambiguity and uncertainty prior to the October non-farm payroll figures, which were revealed in early November, with two horizontal lines creating a trading channel. Take note of the rise in volatility that followed the announcement of the statistics.

Trading news is more challenging than you may imagine, as we have indicated. Why？ Volatility is the main explanation. Even if you are moving in the right direction, the market might not have enough momentum to support your decision.

Let's use Figure 3's chart as an illustration. To demonstrate how challenging trading news releases may be, this chart displays activity following the identical release as that in Figure 2 (on a different time frame, though). The market anticipated a payroll rise of 120,000 jobs on November 4, 2005, however the U.S. economy only added 56,000 jobs. In the first 25 minutes following the announcement, the disappointment caused the dollar to lose almost 60 pips versus the euro.

The gains were rapidly erased, though, due to the dollar's strong upward momentum. An hour later, the EUR/USD had shattered its previous low and had actually struck a 1.5-year low versus the dollar. Opportunities for breakout traders were aplenty, but the dollar's bullish momentum was so strong that even a dismal payrolls data was unable to stop the currency's climb. One thing to bear in mind is that a strong move should be followed by a strong extension on the strength of a solid number.

The graph above demonstrates that although the EUR/USD rate briefly increased as a result of the worse-than-expected non-farm payroll figures, the U.S. dollar was eventually able to regain control and move higher. Keep this in mind whenever the value of the dollar relative to the euro increases.

Trading Exotic Options and News

Trading exotic options might be one way to profit from a breakout in volatility without taking on the risk of a reversal. Exotic options typically have barrier levels, and whether the barrier level is breached will determine whether the option is lucrative or not. The premium or price of the option is dependent on the payout, which is set. The most often used exotic option types for trading news releases are as follows:

Double one-touch option

One-touch option

Double no-touch option

The barrier levels for a double one-touch option are two. Prior to expiration, one of the thresholds must be crossed in order for the option to become lucrative and pay out the buyer. The option expires worthless if neither barrier level is crossed before it expires. Because a double one-touch option is a pure non-directional breakout play, it is the ideal choice to trade for news releases. Even if the price later reverses direction, the payout is still paid as long as the barrier level is crossed.

One-touch options often cost a little less than double one-touch options because there is only one barrier level. The payoff is only made if the barrier is crossed before expiration, and the same rule applies. If you genuinely have an opinion on whether the figure will be greater or weaker than the market consensus projection, this is an excellent choice to purchase.

The opposite of a double one-touch option is a double no-touch option. Both of the barrier levels must be crossed before the option expires; otherwise, the payout will not be paid. There are two barrier levels. This choice is excellent for news traders who believe that the economic data will not result in a clear breakout in the currency pair and that it will instead only have a minor impact.

the conclusion

The publication of economic news from the United States and the rest of the globe might cause short-term changes in the currency market. Knowing when reports are expected, understanding which releases are most significant given current economic conditions, and, of course, knowing how to trade based on this market-moving information are all crucial factors to take into account if you want to trade news successfully in the forex market. You can also benefit if you do your homework and follow the latest economic news. WikiFX will provide you with the necessary information needed to make informed decision about brokers and news forecasts.