Economic data tends to be one of the most important catalysts for short-term movements in any market, but this is particularly true in the currency market, which responds not only to U. With at least eight major currencies available for trading at most currency brokers and more than 17 derivatives of them, there is always some piece of economic data slated for release that traders can use to inform the positions they take.
Generally, no less than seven pieces of data are released daily from the eight major currencies or countries that are most closely followed.
So for those who choose to trade news, there are plenty of opportunities. Here we look at which economic news releases are released when, which are most relevant to forex FX traders, and how traders can act on this market-moving data. The following are the eight major currencies: British pound GBP 4. Japanese yen JPY 5. Swiss franc CHF 6. Canadian dollar CAD 7. Australian dollar AUD 8. New Zealand dollar NZD. This is just a sample of some of the more liquid derivatives based on the currencies above: As you can see from these lists, the currencies that we can easily trade span the entire globe.
This means that you can handpick the currencies and economic releases to which you pay particular attention. But, as a general rule, since the U.
Trading news is harder than it may sound. Not only is the reported consensus figure important, but so are the whisper number and the revisions. Also, some releases are more important than others; this can be measured in terms of both the significance of the country releasing the data and the importance of the release in relation to the other pieces of data being released at the same time. When Are News Releases Issued? Figure 1 lists the approximate times EST at which the most important economic releases for each of the following countries are published.
These are also the times at which you should be paying extra attention to the markets if you plan on trading news releases.
What Are the Key Releases? When trading news, you first have to know which releases are actually expected that week. Second, it is key for you to know which data is important. Generally speaking, these are the most important economic releases for any country: Interest rate decision 2. Inflation consumer price or producer price 4. Business sentiment surveys 7. Consumer confidence surveys 8.
Depending on the current state of the economy, the relative importance of these releases may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment.
For more insight on these indicators, see Economic Indicators To Know. How Long Does the Effect Last? According to a study by Martin D.
Evans and Richard K. Lyons published in the Journal of International Money and Finance , the market could still be absorbing or reacting to news releases hours, if not days, after they are released. The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day. The impact on order flow, on the other hand, is still very pronounced on the third day and is still observable on the fourth day.
The most common way to trade news is to look for a period of consolidation ahead of a big number and to just trade the breakout on the back of the number. This can be done on both a short-term intraday basis and a daily basis. Let's look at the chart in Figure 2 as an example.
After a weak number in September, the market was holding its breath ahead of the October number, which was to be released to the public in November.
For news traders , this would have provided a great opportunity to put on a breakout trade, especially since the likelihood of a sharp move at this time was extremely high. We mentioned earlier that trading news is harder than you might think. The primary reason is volatility. You can be making the right move but end up being stopped out , or the market may simply not have the momentum to sustain the move.
Let's look at the chart in Figure 3 as an example. This chart shows activity after the same release as the one shown in Figure 2, but on a different time frame to show how difficult trading news releases can be. On November 4, , the market had expected , jobs to be added to the U. This sharp disappointment led to an approximately pip sell-off in the dollar against the euro in the first 25 minutes after the release.
Opportunities were plentiful for breakout traders , but bullish momentum in the dollar was so strong that such a bad payrolls number failed to put a sustainable dent in the currency's rally.
One thing you should keep in mind is that, on the back of a good number, a strong move should also see a strong extension. The answer to capturing a breakout in volatility without having to face the risk of a reversal is to trade FX SPOT options. A number of different FX brokers offer a variety of exotic options. Exotic options generally have barrier levels and will be profitable or unprofitable based on whether the barrier level is breached.
The payout is predetermined and the premium or price of the option is based on the payout. The following are the most popular types of exotic options to use to trade news releases: A double one-touch option has two barrier levels.
Either one of the levels must be breached prior to expiration in order for the option to become profitable and for the buyer to receive the payout. If neither barrier level is breached prior to expiration, the option expires worthless. A double one-touch option is the perfect option to trade for news releases because it is a pure non-directional breakout play.
As long as the barrier level is breached - even if the price reverses course later - the payout is made. A one-touch option only has one barrier level, which generally makes it slightly less expensive than a double one-touch option.
The same criterion holds - the payout is only made if the barrier is breached prior to expiration. This is a good option to buy if you actually have a view on whether the number will be stronger or weaker than the market's consensus forecast. A double no-touch option is the exact opposite of a double one-touch option. There are two barrier levels, but in this case, neither barrier level can be breached before expiration - otherwise the option payout is not made. This option is great for news traders who think that the economic release will not cause a pronounced breakout in the currency pair and that it will continue to range trade.
FX SPOT options are a viable alternative for those who do not care to get whipsawed in the markets by undue volatility before they actually see the spot price move in their desired direction. The Bottom Line As we've seen, the currency market is particularly prone to short-term movements brought on by the release of economic news from both the U.
If you want to trade news successfully in the FX market, key considerations to keep in mind are knowing which releases are expected when, which ones are most important given current economic conditions and, of course, how to trade based on this market-moving data.
A variety of exotic options are available for traders who want to capture a breakout in volatility without having to face the risk of a reversal; do your research and stay on top of economic news and you could reap the rewards. Dictionary Term Of The Day. Broker Reviews Find the best broker for your trading or investing needs See Reviews.
Sophisticated content for financial advisors around investment strategies, industry trends, and advisor education. A celebration of the most influential advisors and their contributions to critical conversations on finance.
Become a day trader. New Zealand dollar NZD This is just a sample of some of the more liquid derivatives based on the currencies above: Times at which various countries release important economic news. Manufacturing sector surveys Depending on the current state of the economy, the relative importance of these releases may change.
This chart illustrates the indecision of the market leading up to the October non-farm payroll numbers, which were released in early November. Note the increase in volatility that occurred once the worse than expected news was released.
Double one-touch option One-touch option Double no-touch option A double one-touch option has two barrier levels. How much a fixed asset is worth at the end of its lease, or at the end of its useful life. If you lease a car for three years, A target hash is a number that a hashed block header must be less than or equal to in order for a new block to be awarded.
Payout ratio is the proportion of earnings paid out as dividends to shareholders, typically expressed as a percentage. The value of a bond at maturity, or of an asset at a specified, future valuation date, taking into account factors such as No thanks, I prefer not making money. Get Free Newsletters Newsletters.More...