It is crucial for new traders to familiarize themselves with the various economic indicators and forex news events and releases that shape the markets in the fast-moving world of currency trading, where seemingly massive moves can come out of nowhere.
Indeed, new traders can quickly become far more profitable and set themselves up for long-term success by quickly grasping which data to look out for, what it means, and how to trade it.
Even though it’s possible to make a lot of money trading technical chart patterns, it’s crucial to keep tabs on the fundamental forex news that’s really pushing markets. We’ve compiled the five most crucial recent press releases and economic indicators for you below.
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Top 5 Market News Event To Know
1. The Interest Rate Announcement from the Central Bank
Each month, the world’s Central Banks get together to discuss and vote on interest rates. The decision they face is whether to maintain current interest rates, raise rates, or lower rates, and the result of this decision has significant implications for the value of the economy’s currency and, by extension, for traders.
An increase in rates is bullish for the currency (meaning its value will rise) while a decrease in rates is bearish (meaning its value will fall), and a decision to leave rates unchanged can be either bullish (meaning its value will rise) or bearish (meaning its value will fall), depending on how the economy is seen at the time.
Not only is the decision itself important, but so is the policy statement that accompanies it, in which the Central Bank lays out its overall assessment of the economy and its outlook for the future. Important announcements, like the start of quantitative easing, are also made here in the realm of monetary policy.
For instance, the ECB’s decision to lower the EuroZone rate to 0.05% in September 2014 resulted in a drop of over 2000 pips in the EURUSD exchange rate, making rate decisions a great source for profitable trades.
2. Gross Domestic Product (GDP)
The GDP is a crucial measure of a country’s economic well-being. How quickly a country’s GDP should grow is set annually based on the central bank’s forecasts.
Currencies tend to decline when GDP is lower than expected and to rise when GDP is higher than expected. Currency traders pay close attention to this number because it allows them to cautiously anticipate future actions by the Central Bank.
When the GDP of Japan unexpectedly shrank by 1.6% in November 2014, the value of the yen plummeted against the dollar as investors braced for more intervention by the Bank of Japan.
3. Consumer Price Index (CPI) Inflation Data
Of all the available economic indicators, inflation is typically measured by the Consumer Price Index (CPI). The index shows whether or not consumers are paying more for the same market goods as they did in the past, based on their historical price paid averages.
The release is watched by central banks to inform their decisions on interest rates and other policies. Rising interest rates are implemented to combat inflation if it is observed to be present and trending beyond a predetermined target.
The Canadian Consumer Price Index (CPI) for November 2014 came in at 2.3%, exceeding market expectations of 2.2%, leading to a six-year high for the Canadian Dollar versus the Japanese Yen.
4. Unemployment Rate
To Central Banks, the unemployment rate is a key indicator of the health of the economy, making it a key factor for markets as well. Traders pay close attention to this number because it predicts future interest rate hikes, which Central Banks use to try to keep inflation and growth in check.
The US ADP and NFP figures are released every month, and the NFP is the most important of the two major labor statistics along with the Unemployment rate.
We place such emphasis on this number that every month we provide an NFP preview in which we discuss the upcoming release and how to profit from it. The importance of this number rises every month in light of the market’s fixation on the expected date of a Fed rate hike.
For this reason, the ADP data is widely regarded as a reliable indicator of the NFP before it is even released.
5. The Federal Open Market Committee (FOMC) Meetings
The Federal Open Market Committee (FOMC)nmeeting in the United States is the most important because the US dollar is the reserve currency of the world.
The committee meets monthly to determine interest rates and to issue a statement on the state of the economy and the success of current monetary policy, with an eye toward the future.
Members of the committee vote on whether or not to raise interest rates at each meeting, with “Hawkish” members being in favor of doing so and “Dovish” members advocating for a reduction in rates.
Traders closely examine the statement released by the Committee for clues as to how the Central Bank will behave in the future, and even the most seemingly inconsequential terminology can cause large market movements, as was recently seen in the case of the Fed’s use and then removal of the term “patient” regarding rate hikes.
As seen on March 18th, 2015 when EURUSD jumped 400 pips in a matter of minutes after markets interpreted a Federal Open Market Committee meeting as negative for the US dollar.
This article on An introduction to trading the forex news would be a helpful guide. Must read.
Any announcements of monetary policy shifts, like the launch of a new round of quantitative easing, are also made at these Central Bank meetings.
With the ECB’s latest QE program announcement on January 22nd, the Euro fell against the Dollar by more than 600 pips.
It is not so much the meaning of a given economic indicator or forex news release that matters, but rather the market’s reaction to that release’s anticipation. Forex news events can be challenging for novice traders due to the high degree of volatility and uncertainty involved. Fortunately, we offer a fantastic suite of indicators that are tailor-made for trading news events.
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