- “forex News Trading: Capitalizing On Australian Market Updates For Profit”
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“forex News Trading: Capitalizing On Australian Market Updates For Profit” – Forex is a global, decentralized market used to trade different currencies from around the world. These markets are responsible for determining the value of foreign currencies for each major currency.
Because of the global reach of trade, commerce, and finance, these markets tend to be the largest and most liquid markets in the world.
“forex News Trading: Capitalizing On Australian Market Updates For Profit”
This post will explore how news can affect the forex market and trading strategies you can apply to profit from price movements in forex.
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One of the benefits of trading in the forex market is that traders can trade 24 hours a day, five days a week. This is second only to cryptocurrencies that are available 24/7.
All markets, be they stocks, commodities, forex, or cryptocurrencies, can be affected by external events. Whether it’s Chinese government policy decisions, natural disasters, or terrorist attacks, recent decades have shown time and time again that world events have an impact on market direction.
These markets respond not only to US economic data such as interest rates or NFP numbers but also to worldwide news.
There are 8 major currency pairs that can be traded at almost every established brokerage. These currencies range from US dollars to Japanese yen and Swiss francs.
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That means there are at least 8 countries whose economic data will be correlated in the forex market.
Therefore, traders are practically guaranteed that there is always some economic data scheduled for release that can be used to inform their trade. Indeed, up to 7 pieces of data are released every weekday that forex traders can use.
This abundance of data and the constant release of news is why news more significantly affects the forex market. Let’s look at an example of how some of this news can affect the forex market.
Suppose a trader wakes up to the news that the Reserve Bank of New Zealand (New Zealand’s central bank) has taken a more hawkish or aggressive stance on interest rates in New Zealand. The Governor of the Reserve Bank of New Zealand has issued a statement detailing that they will not cut interest rates as expected and instead there will be a slight increase in rates.
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Since interest rates directly affect the value of currencies, this news will be relevant to forex traders.
The unexpected news that there will be no cut in interest rates can be expected to boost the value of the New Zealand dollar. Forex traders will use this news to inform their trading decisions for all trades on the New Zealand dollar in the hours/days following the news.
As the name suggests, these news releases tend to have the highest impact on the forex market, and so traders are well-advised to take notice of them when they are released.
The central bank has a mandate to control inflation and maintain the value of a nation’s currency. To do this, they have several tools at their disposal.
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One of these tools is the ability to control interest rates. Interest rates set by the central bank have a direct impact on the value of a nation’s currency. Traders, therefore, remain vigilant in the central bank meeting to determine whether there will be a change in interest rates in the future.
Forex traders are famous for rigorously analyzing the monthly statements issued by the central bank and have been known to send the market into a spin if the slightest hint of interest rate cut.
In the United States, the highest impact release is US Non-Farm Payrolls. This report details the change in the number of people employed in the previous month excluding those employed in the agricultural industry. The US Bureau of Labor Statistics released it on the first Friday of the month.
It is relevant for forex traders because the US Federal Reserve takes this data every month when determining its interest rate policy.
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If there is high unemployment, the Federal Reserve will likely cut interest rates to stimulate employment in the economy. This will mean that the value of the US dollar will fall, and so the trader will enter a short position to benefit from this.
The Consumer Price Index (CPI) is a measure of inflation. It details the price changes of various goods and services in the economy.
If the prices of goods and services are rising, it is an indication that there is likely to be inflation. At the time of writing, there is much discussion about lumber prices in the United States, and many commentators believe that the increase in lumber prices is a warning of impending inflation.
Again, there is a direct relationship between CPI data and interest rates as the Federal Reserve monitors this output and takes the information into account when determining interest rates.
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This data provides information on annual changes in the inflation-adjusted value of goods and services produced in a country’s economy. Simply put, it is a measure of the size and economic health of a country at some point in time. This is a comprehensive piece of data, and it is difficult for the central bank to make direct policy changes based purely on this information.
However, it remains a primary gauge of overall economic strength and therefore cannot be ignored. In general, if a country’s GDP is trending up, then it is possible that the economy is growing, which means that the central bank can increase interest rates. If interest rates rise, so does the value of the currency. All roads seem to lead back to interest rates.
While these are the four main sources of high impact news in the forex market, the chaotic nature of the world around us means there is always a chance a black swan event could occur and cause the market to fly or crash.
The US president may decide to hold an impromptu press conference and make vague references to a trillion-dollar stimulus package that sends the US dollar soaring. Or, a pandemic could start.
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Forex traders should always be aware of current events as there is always a chance new developments may affect the currency they are trading.
Due to the number of relevant countries releasing data regularly, it can be difficult for traders to track what is happening and when.
To help traders organize the release of high-impact news, several different calendars have been developed to track important data or news releases.
As with the economic calendar above, there are many sources where you can find live news relevant to trading.
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Below you will find links to three reputable sites where you can find live news related to the forex market.
Trading news comes with several advantages for traders. This is because traders know exactly when they will trade and can almost guarantee that there will be price movement when they trade.
As a result, the most common trading strategy in forex is for traders to identify currencies in periods of consolidation or uncertainty before releasing high-impact news items.
If there is a breakout due to a news release, traders can trade this movement in the value of the currency. This can be done on intraday time frames like 1 hour time frame and below.
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First of all, traders should choose relevant news to trade. Not all news is suitable for forex trading. In general, any of the news releases listed above should be suitable for trading. The most important news will usually come out of the United States, so news from there should also be considered.
Once traders have determined which news broadcast they will trade, they must begin to analyze the chart of the currency they will trade. The grounding for price movement is often laid beforehand so studying the chart will help traders determine how best to trade the news.
Finally, traders should remember not to rush to open trade. It is tempting to open positions as soon as possible to ensure you capitalize on the momentum. This is a mistake; news momentum can usually last more than an hour. Traders should use this time to analyze the chart using their technical analysis techniques.
If the trader already has an open position before the news is released, it is recommended to think about closing the position until the release of this news.
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This can be annoying, especially if there is a loss in the current position, but it can be a best practice to minimize your risk. There is no way to know what a news release will show or how the market will react, and proper risk management is the key to success for long-term traders.
Trading in the forex market may seem as simple as keeping an eye on interest rates and planning your strategy based on whether they rise or fall.
In fact, trading is rarely such a straightforward practice. If that, everyone will trade in
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