The Impact Of Political Events On Forex Profits

The Impact Of Political Events On Forex Profits – One of the biggest advantages of trading currencies is that the forex market is open 24 hours a day, 5 days a week (5pm Sunday to 4pm ET Friday). Because markets are driven by news, economic data is often the most important catalyst for short-term movements. This is especially true in currency markets, which react not only to US economic indicators but also to news around the world. Here we look at which economic numbers are released when, what data is most relevant to forex traders, and how traders can act on the information that moves these markets.

With at least 8 major currencies available for trading at most currency brokers, economic data is always available that forex traders can use to trade informedly. In fact, more than 7 data are released almost every weekday (excluding holidays) from the 8 major countries with the most following. So, there are many opportunities for those who choose to be a news exchange. The 8 major currencies are familiar to most traders.

The Impact Of Political Events On Forex Profits

Currencies that can be easily traded are all over the world. This means you can choose which currency and economic announcements you pay particular attention to. Generally, however, US economic announcements tend to have the greatest impact on the foreign exchange market, as the US dollar is “in opposition” in 90% of all currency trades.

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News trading is harder than you think. Not only the reported consensus figures matter, but also the whispered figures (unofficial and unpublished forecasts) and corrections to previous reports. Also, some releases are more important than others. This can be measured in terms of the importance of the country disclosing the data and the importance of the disclosure relative to other data being disclosed.

Figure 1 lists the approximate times (Eastern Standard Time) of the most important economic releases for each of the following countries: This is also a time when players in the forex market pay special attention to the market, especially when trading based on press releases.

When trading news, you first need to know what releases are actually expected that week. Second, it is also important to know which data is important. Typically, the most important information relates to changes in economic growth, such as interest rates, inflation, retail sales, manufacturing, and industrial production.

Current economic conditions may change the relative importance of these releases. For example, unemployment may be more important this month than trade or interest rate decisions. So it’s important to know what the market is focusing on right now.

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According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), markets can absorb or react to press releases for hours, if not days, after the figures are published.

Studies have shown that the impact on returns typically occurs on the first or second day, but the impact appears to persist through the fourth day. On the other hand, the impact on buy and sell order flow is very pronounced even on day 3 and can be observed on day 4 as well.

The most common way to trade the news is to look for a period of consolidation or uncertainty before the big numbers and trade the breakout on the back of the news. This can be done on a short-term (intraday) or overtime basis. few days. Take the chart in Figure 2 as an example. After a sluggish performance in September, the euro was holding its breath ahead of the October figures, which will be released to the public in November.

In the 17 hours prior to launch, EUR/USD was capped within a 30-pip trading range. (A pip is the smallest unit of change in a currency pair in the forex market, and most major currency pairs are priced to four decimal places, so the smallest change is the last decimal place.) News traders would have been given this. This was a great opportunity to land a breakout trade, especially since the plunge was very likely at this time.

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The chart above shows the indecisiveness and uncertainty around the October nonfarm payrolls figures released in early November, with the two horizontal lines forming the trading channels. Note the increase in volatility that occurred after the figures were published.

I mentioned earlier that trading news is harder than you think. why? The main reason is volatility. You can take the right steps, but the market may not have the momentum to sustain those actions.

Take the chart in Figure 3 as an example. This chart shows the same post-release activity as shown in Figure 2 (but at a different time frame) and shows how difficult it can be to trade a news release. On November 4, 2005, while the market was expecting an increase of 120,000 jobs, the US economy only gained 56,000 jobs. Disappointment caused the dollar to sell about 60 pips in the first 25 minutes after launch.

However, the dollar’s upward momentum was so strong that the uptrend quickly reversed, and an hour later EUR/USD broke its previous low and actually hit a 1.5-year low against the dollar. Opportunities abounded for breakout traders, but the dollar’s bullish momentum was so strong that such bad payroll numbers failed to deal a sustainable blow to the currency rally. One thing to keep in mind is that a strong move should show a strong extension after good numbers.

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The chart above shows that while the EUR/USD exchange rate moved higher in the short term due to worse-than-expected nonfarm payrolls, strong momentum in the US dollar was able to control it and lift it higher. Keep in mind when the US dollar appreciates against the euro.

One potential answer for catching breakouts in volatility without facing the risk of a reversal is to trade exotic options. Exotic options usually have barrier levels and are either profitable or unprofitable depending on whether or not the barrier level is breached. The payout is predetermined and the option’s premium or price is based on the payout. Below are some of the most popular types of exotic options used in press release trading.

The double one touch option has two blocking levels. For the option to become profitable and the buyer to receive a payout, it must breach one of the levels before expiration. If neither barrier level is breached before expiration, the option expires worthless. The double one touch option is a perfect option for press release exchanges as it is a pure non-directional breakout play. Even if the price later reverses, the payout is paid as long as the barrier level is breached.

One-touch options have only one barrier level, so they are usually slightly less expensive than double one-touch options. The same criteria apply. This means that payouts are only made if the barrier is breached before expiration. This is actually a good option to buy if you have an opinion on whether that number will be stronger or weaker than the market consensus forecast.

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Call options are a viable alternative for those who do not want the market to be swept away by excessive volatility before seeing spot prices actually move in their desired direction. Many different types of currency options are available through a handful of forex brokers.

The double no touch option is the exact opposite of the double one touch option. There are two barrier levels, but in this case neither barrier level can be breached before expiration. Otherwise, no option payment will be made. This option is good for news traders who believe economic announcements will be made.

Currency markets are particularly vulnerable to short-term movements driven by economic news releases from the US and around the world. To successfully trade the news in the forex market, there are several important considerations: Knowing when to expect a report, understanding which releases are most important in the current economy, and of course knowing how to trade based on market fluctuation data. . Do your research and stay up to date with economic news and you too can be rewarded.

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