Economic data is released practically daily from one country or another, meaning that for those who prefer Forex news trading there is no limit to the number of opportunities available. However, since many of the currency pairs available trade against the USD due to it being one of the most liquid currencies and the world’s reserve currency, U.S. economic news tends to have a more pronounced impact on the market, which is why you need to be prepared for significant volatility prior, during and immediately after U.S. news releases.
Forex news trading isn’t as simple as it sounds, though, because not only are the figures themselves important but also how they stack up against the forecasted figures. Thus, for example, if the figures are on par with the forecast then you might see limited to no movement at all. However, if the figures are more positive than expected you could see a spike. Additionally, some releases have a greater impact than others depending on the country issuing the release and the economic data itself.
Since the major currencies span the entire globe, economic data is released practically all day and night due to the various time zones. You will need to familiarize yourself with the times the various countries issue their reports if you want to get into Forex news trading because every release can present an opportunity, however small it may be.
What Economic Data is Important
Knowing what news will be released in any given week is vital if you want to get into Forex news trading and your broker should provide a comprehensive calendar with all the releases scheduled for that week with many providing data for a few months in advance. It is also important to know which data has the biggest impact so you know what to look for.
In general, the most important economic data released by any country that will impact its currency include interest rate decisions, inflation rates, unemployment levels, industrial production, retail sales, consumer confidence, business sentiment and the trade balance. While all of these are important, their level of importance can change with time. For example, during the recent crash and subsequent recession when unemployment rates were steadily climbing, the rate of unemployment would cause incredible volatility in the market. Consumer confidence also had a large impact because without the consumer spending money, the economy would grind to a standstill.
Unfortunately, Forex news trading is extremely risky because the market can become incredibly volatile. The currency market doesn’t behave as you always expect it to and sometimes, even if the numbers are positive and you expect a breakout through the resistance level, the initial move may be quite the opposite. If you don’t have the margin to carry the trade through its upward momentum until it corrects and begins to retrace then you could very well end up losing most of your account.
While Forex news trading might be a good trading strategy it is best that beginners stay away from trading during news releases completely. As previously stated, without sufficient experience and margin you could end up losing your account in two trades, especially since it usually takes a while to master your emotions. Remember that during news releases certain currency pairs can move over one hundred pips in as little as ten minutes.
However, once you gain some trading experience you can have a go at Forex news trading but it is recommended that you start off with a practice account. This way you will start to learn how a certain currency pair reacts to various economic data and it will be easier to predict the breakouts and corrections in the future.