/ Trading

Trading news and the major new releases

News, most people watch it, many want to be in it, but how many trade it? I wrote this a day after some poor housing data in the US saw the USD get kicked, belly flopped and Chinese burnt (the most painful) and those trading news are still recovering (or rolling around naked in money).

It sent cries of despair around social media asking just what in the world happened! It must have been serious. While I am a technical trader, to ignore major economic news releases is asking for a slap in the face with a wet fish, quite unpleasant.

I read the newspaper back to front (Sport, Comics, Crosswords, Obituaries, News, Finance). When obituaries come before the finance section, my lack of affection of the fundamentals is pretty clear.

However I am a man of giving. So for the benefit of all my fellow back to front readers, here is a rundown on the main fundamentals, what they typically mean for a currency. After reading these, you too can be completely confused when these rules aren’t followed.

The major releases when trading news

Unemployment figures

What: Measure of unemployed people in the country looking for work.
Better than expected: Currency may strengthen
Worse than expected: Currency may weaken e.g. Japanese unemployment figures worse than expected, JPY to weaken against other currencies, so the USDJPY would go up (USD strengthening against the Yen/Yen weakening against the Dollar).

Gross Domestic Product (GDP)

What: Gross Domestic Product, a broad measure of economic growth of a country.
Better than expected: Currency may strengthen
Worse than expected: Currency may weaken e.g. US GDP figures show the economy is growing, investors take this as a positive sign for the country as well as a hint that interest rate rises may be needed at some point, investment in the US dollar follows, pushing up pairs such as USDJPY, USDCHF and bringing down EURUSD and GBPUSD.

Consumer Price Index (CPI)

What: Consumer Price Index, derived from comparing a set basket of goods over a period of time to see if prices have increased, resulting in increased inflation for consumers.
Increases: Currency may strengthen
Decreases: Currency may weaken e.g. Australian CPI figures come in lower than previous, this indicates that the economy is slowing by itself, meaning the Central Bank will not need to increase interest rates to slow it artificially. Would result in the Aussie dollar losing some of its value as funds are moved elsewhere, resulting in the AUDUSD dropping.

Consumer Confidence

What: A measure of near term spending habits of a countries consumers.
Up: Currency may strengthen
Down: Currency may weaken e.g. German Consumer Confidence shows an increase from previous, this is a sign that the people of that country feel positive about the economy and their financial situation, indicating that there will be increased spending, which would strengthen the economy and push something like the EURUSD up.

Retail Sales

What: As the name suggests, measures the retail activity, ties in with Consumer confidence somewhat.
Up: Currency may strengthen
Down: Currency may weaken e.g. Japanese Retails Sales are up, showing that their is increased spending, showing the economy is in good shape, consumer confidence must be good, and so the currency will strengthen, so USDJPY would go down (USD weaker against a strengthening JPY).

Trade Balance

What: It measures the difference between total imports and total exports of goods in a country.
Up: Currency may strengthen
Down: Currency may weaken e.g. US shows a positive Trade Balance reading, this means that more goods were exported from the US, which is a good thing for the economy, therefor strengthening the USD, so EURUSD would go down, the USDCHF would go up (these almost always run inverse of each other).

Interest Rates

What: A tool to slow an economy or encourage spending.
Up: Currency may strengthen
Down: Currency may weaken e.g. Like all of us, we want to invest cash into high interest earning areas, so if a countries interest rates are increased, money is moved to that country, resulting in it’s currency strengthening substantially usually. So if US interest rates are increased, then the USDCHF for example would rise.

These are just the basics when trading news, there are so many data releases, barometers and speeches, and quite frankly, keeping up with them all is not something that ranks above the latest Curling scores.

A trick for the lazy

A quick trick for the lazy, think of trading news in terms of interest rates. If the data release is indicating the economy is speeding up, it hints that there will be a need to increase interest rates to slow it down before inflation takes hold and vise versa. Here is a chart to demonstrate what I am talking about:

EURUSD and trading news

You can see the effect of another data release not listed above, US House Sales. The release was much worse than expected, with US House Sales dropping considerably, hinting people don’t have as much money to spend and interest rates may drop to boost the flagging housing market. Dropping interest rates discourage the carry trade, a slowing economy discourages new investment and puts pressure on the home currency.

Before you go

Two important notes:

  1. Remember that figures are always compared to the “expected” figures. So while a release might come in below the previous, if this was expected anyway, it may already be figured into the price and the movement may be minimal.
  2. Forex instruments are pairs, the USD vs the EUR, the EUR vs the JPY, so pairs will not only move in comparison to expected results, but also relative to the strenght/weakness of the pairs they are matched against. It is all relative.

My advice to those just starting out, be mighty careful trading news. Spreads widen, stops are run and things get a little wild. I haven’t even mentioned Non-Farm payrolls.

Best of luck with it, below are some links to economic calendars that will help you keep up with the new releases: