As with other asset classes, forex trading news can become particularly active before and following major economic events. However, there are significant differences between the type of news that sets apart currencies from other financial markets.
Forex markets tend to respond the most to macroeconomic news – the kind of developments that reflect or impact broad economies. Generally speaking, forex traders look at economic news to assess its impact on interest rates and monetary policy. News that suggests a more hawkish (aggressive) central bank tends to push forex pairs up in value relative to other currencies, while dovish (peaceful) news can depress a currency.
The forex market is the largest financial market in the world, with a market capitalization of over $6 trillion in 2019. Forex market hours run for 24 hours of the day, due to the overlap of time zones, which makes it an especially attractive market for investors. It can also be a very volatile market to trade, therefore, forex news is constantly being updated with new rates for interest and exchange, as well as overall growth of the market.
How to trade the news in forex
The release of forex trading news is scheduled in advance and well publicized. Forex news releases normally come out at a set time. For example, the US non-farm payrolls employment figure is usually released on the first Friday of each month at 1.30pm GMT.
Forex traders tend to look out for certain key forex economic indicators that can have an impact on interest-rate speculation, including:
- Central bank decisions and speeches
- Inflation rates
- Gross domestic product (GDP) figures
- Employment figures
- Trade balances
News related to market sentiment can also influence currency trading, particularly those considered to be safe-havens, including commodities such as gold and silver, as well as the major currencies USD, JPY and CHF. These currencies tend to attract capital during times of turmoil and see outflows when the financial markets settle down.
News that can impact risk-on, risk-off trading includes stock market returns and volatility, financial stresses at the national or continental level, political turmoil, elections, treaty negotiations and other broad news beyond economic data and central banks.
Forex news trading strategy
Currencies of countries that are major exporters of raw materials or commodities can be impacted by news forex trading news, as this affects the prices of the main commodities that they produce. These currencies are often referred to as resource currencies. Prices of commodities that affect these currencies can be influenced by issues affecting supply and demand.
On the supply side, news that suggests a lower supply can push up prices, while news that suggests higher supply can depress prices, which can then impact related currencies. News that could reflect changes in supply may cover political tensions, wars, terrorism, weather, economic sanctions, labour relations (strikes) and more. Speculation and pricing related to demand is mainly influenced by many of the same major news releases noted above, plus commodity inventory reports and outlooks.
Forex news trading predictions
Traders should be aware that demand for many commodities – and therefore the commodity's price – rises and falls with the seasons. Seasonal forex trading news and impacts are seen mainly in energy and agricultural commodities, but less so for precious metals. The table below shows some of the main resource currencies and the commodities that affect them.
|Canada||USD/CAD||WTI crude oil and metals|
|Australia||AUD/USD||Base metals and grains|
|New Zealand||NZD/USD||Livestock and dairy|
|Sweden||USD/SEK||Metals and forest products|
|South Africa||USD/ZAR||Precious metals|
|Russia||USD/RUB||Crude oils, natural gas and metals|
In general, news that has a significant impact on individual company stocks has no major impact on currencies. Stock market news that has little or no impact on currencies includes earnings reports, management changes, mergers and acquisitions and partnerships. Therefore, it is easier to make more reliable forex news trading predictions with how the market will perform.
Source: CMC Markets UK