Usually in economics, when the market is in a state of uncertainty, investors tend to hold on to their cash or investments in the hope of a change of trend. However, in the case of the forex market, this could spell disaster for some people. In general, most forex investors pay little attention to economic news because they base their decisions primarily on their own trading experience and knowledge of the market.
Economic news is mainly news about changes in the economy such as unemployment figures, GDP growth, government debt figures, commodity prices, etc. Generally speaking, most forex traders pay little attention to economic news because they base their decisions on the previous year’s results, and the past few months’ performances.
However, many traders do watch economic news as an indicator of market behavior. They do so because of the recent recession, and a possible recovery, which is seen as a sign of market strength.
The following is an example of forex news that has been closely watched by the market. In January, the Federal Reserve released a statement that indicated that it was likely to increase interest rates at its March meeting. This announcement came a day before the market was set to open, and forex traders began to jump on the opportunity to trade this news as an opportunity to sell. When the market opened on Monday, the USD/JPY reached a new high, and subsequently made gains of over 1% in just a few hours.
Since the announcement came one day before the market was to open, the forex markets were closed on a holiday. Many more investors were caught off guard by the news, and so there was very little chance that the news would affect the market. Nevertheless, traders quickly realized that this news was not good news for the USD/JPY and began looking to purchase the Japanese currency and sell the US dollar. In fact, many traders saw this news as a sign that the Federal Reserve would likely raise interest rates significantly.
As the market began to react, FX news began to change dramatically, and began to show a downward trend. Because the markets were closed on a holiday, there was very little economic activity, and the news spread rapidly across the world.
One of the biggest reasons that FX news is important to the forex markets is because it is a direct reflection of market behavior. If the market does not react to changes, then the news will not influence your investments and you will not be able to make money, as opposed to investing when the news reflects your expectations for the market and is bullish.
As always, the best way to trade FX news is to know what your indicators are and to keep a close eye on them. These are often referred to as the MACD, Stochastics, Moving Average Convergence Divergence and Trend lines, respectively. If the price action of the indicators indicates that the market is bearish, you will want to sell before the indicators go upward, and you should wait until after the indicators have gone down to make a profit.
For example, if the MACD has been showing a bearish trend line for a period of time and shows no movement, you can expect that the market will begin to reverse. However, if the same indicators have been showing an upward moving trend line, you will want to buy the currency once they go up again. In this case, buying will create profits as long as the market reverses.
However, when the market is bullish, buying is not a bad idea. This means that you will want to purchase the currency before the indicators show bullish signals, since you will make more profits if the market reverses before the indicators reach their current levels. The opposite is also true.
Another factor in the ability to profit from economic news is the strength of the US dollar. If the US dollar strengthens and the euro weakens, then the euro is the ideal currency to purchase, as it would offer a greater opportunity for profits in the long run than if the dollar strengthened and the euro weakened.
When the news releases the same economic indicators for both sides, it is advisable to buy the currency on both sides of the trend, since this would result in greater profits in the long run, but when the news releases two opposite economic indicators, you should only purchase the weaker currency. If you are trying to trade the news, try to purchase the currency that is stronger in relation to one or both of the indicators, since it will make it more difficult to sell in the event that the trend reverses.