What Kind of News Do We Trade?
All Forex trader are concern or focus about Forex Fundamental News. All are wait what kind of news come and what happen. But interesting subject is, there is lot of news and outcome that no Forex trader catch whats going on. By this matter we are try to focus you some matter and try to learn whats going on in Fundamentally view.
What Kind of News Do We Trade?
There is literally hundreds of financial news released around the clock from all over the world. The key is to concentrate on news releases that have an immediate impact on the market. There are about 5 to 10 important news from U.S and about 3~5 each from UK, EURO Zone, Australia, Canada, and Newzeland. These news releases are usually scheduled monthly or quarterly; they will repeat every month around the same day of the week or day of the month.
We only trade news releases that are currently considered as “hot”, meaning that the market is particularly interested in it. For example, a few years ago during the real estate boom, U.S. Housing Start, Existing Home Sales, and New Home Sales were constantly ignored and no one was paying attention to it. Why? Because at the time economy was doing good, home sales were always better than expected, and market just assumed the best and basically ignored the numbers. Look at the same news releases today in mid 2008,
Housing news releases were particularly important because the economy is suffering, any signs of rebound from the housing sector signals improvement in the economy, as many market analysts pointed out; therefore, housing data is currently “hot”. Similarly, the weekly Jobless Claims just became “hot” recently because of former Fed. Chairman Greenspan talked about it in his book…Other news releases such as consumer confidence, current account, and even the TIC Net Long‐Term Securities are currently being ignored. But they will eventually become hot again, as many of these news releases and market focus work in cycles, just as the fashion industry.
The key to trading economic news successfully is to be selective with news releases to trade. As stated before, with hundreds of news released monthly, why risk with less important news releases and gamble your hard earned money when you can trade with news that have a higher probability of success?
Therefore, I have compiled a list of news releases that have a high probability of success (at least 70%) backed by solid track record. Another important “hot” factor in today’s market is RISK. There are basically two different reactions to Risk, one being “Risk Aversion” and the other “Risk Appetite”.
Risk Aversion basically means to avoid risk. Market will react go with the safest route, selling high yielding currencies and buying low yielding currencies, such as BUYING CHF and JPY while SELLING GBP and AUD. Few instances recently of
extreme market risk aversion, GBP/JPY pair have been documented losing up to 1000 pips in a 24 hour period. This is an extreme example but not an isolated case, we have seen risk aversion taking over market sentiment and dropping USD/CHF, GBP/JPY, AUD/JPY 200 to 500 pips a day.
What kind of news sparks Risk Aversion? The answer: Any news that creates risk (or rumor of risk) in the market, for example:
1. Geopolitical uncertainty – Rumors of war or actual terrorist attack.
2. Sub-prime Mortgage Write‐down – Bear Sterns, Fannie Mae, Freddie Mac, etc…
3. Major industry sector negative earning/forecast report. Such as AIG (insurance), Bank of America (finance), GM (Auto), etc.
4. Or any huge surprise in fundamental news that reminds the market of the condition our economy is currently in. Such as a worse than expected Housing Data, a worse than expected employment data or unemployment rate, etc…
What to do in a Risk Aversion situation? The best answer is to stay out of the market!
Risk Appetite means market willing to take on risk. What is considered risk?
When the market is buying high‐yielding currencies such as GBP, and selling low yielding currencies, such as JPY, it is considered as Risk Appetite.Therefore, when carry trades (JPY based trades) are winding, or going up, it is a sign of Risk
What kind of news sparks Risk Appetite? Basically any news that promotes:
1. Geo‐Political Stability – Peace Treaty, peace talks, etc…
2. Good Earnings Report from major sectors.
3. Good Surprises in fundamental news, such as better than expected housing, employment, or economy data.
Risk Appetite is different from Risk Aversion whereas Risk Aversion will be followed with strength in both JPY and CHF currencies, while Risk Appetite will not only promote carry trades, but all high‐yielding currencies in general. Risk Appetite will likely to promote stable market condition and normal daily volatility.*****Happy Trading******* ========================================
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