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Trading The News
When it comes to traders, especially short term traders, You generally find individuals in one of two camps. There are those who trade using fundamental data and those using technical data. Many will argue the point that fundamental data is more suited for longer term investing. But for those who trade the news, it is perfect for day trading. Fundamental economic data, in the world of foreign exchange, consists of a long list of reports usually released by government agencies. These economic data usually have a major impact on currency values as they relate to other foreign currencies. Add to that the fact that data is released on predetermined days and at predetermined times, and you have the closest thing to a sure bet when dealing with financial instruments. Please note that I am not saying that you will always make money with these trades, but you will always know when the market will move, and sometimes violently. And as an added benefit, the playing field is somewhat leveled by the fact that all traders get this information about the same time. As with everything in life, some reports have more impact than others. Depending on the report, you can expect currencies to move up or down in predictable directions. You can see the advantage of knowing when a report will move the market in one direction or another. When trading the US dollar, there are three reports that are certain to move the market: Employment Situation Commonly referred to as the "employment report," it contains data from two different surveys. One is the household survey which is used to determine the unemployment rate. The other is the establishment survey. This is a poll of businesses to produce detailed data, such as total non farm payrolls, average workweek, average hourly wages, payrolls by industry, and many other items. This report is released by the Bureau of Labor Statistics of the U.S. Department of Labor at 13:30 GMT on the first Friday of each month. Retail Sales This report is a measure of total receipts of retail stores. Because the US economy is driven by consumer spending, this report reflects the changes and strength of the economy. This report is released with two different sets of data. Separated out from the overall data are figures that represent retail sales without auto sales. This report, which is routinely revised, is released by the Census Bureau of the Department of Commerce at 13:30 GMT on or about the 13th of the month. Consumer Confidence Unlike the previous two reports, this is data compiled and released by The Conference Board rather than a government agency. The report is a statistical representation of the general perception of households as they pertain to the economy. This report is a combination of two different indexes, consumers' view of current conditions and their expectations of the future. Future expectations are weighted at 60% of the report while current conditions represent the remaining 40%. A change of 5 points or more from one month to the next is considered significant. This report is released at 15:00 GMT on the last Tuesday of the month. There are many traders who only trade these reports. The employment data has been known to move the EUR/USD currency pair more than 100 pips in a matter of a few hours. There are a number of other reports that move the market. One with the impact of the employment report is the decision of the Federal Open Market Committee, also referred to as The Fed. The name is somewhat of a misnomer because this is not a governmental agency, in the true sense. The Federal Reserve System is considered the central bank of the United States. It is governed by a federal agency. They make a determination on short term interest rates. They also set monetary policy and statements made by board members can effect markets just as much as an interest rate statement. Meetings are scheduled at various times of the year. A schedule can be found at Federal Reserve Bank. So how does one use this information? Simply put, good economic data tends to cause the value of the US dollar to rise and bad economic does the opposite. But it involves a little more than that. Quite often the news, either good or bad, is a function how it relates to the consensus estimates. For example, if retail sales increase this month over the previous month, but fail to equal or exceed the consensus, the value of the US dollar will likely fall against other currencies. If you would like to learn more about trading the news, you should consider the Institutional Forex System. This system helps you profit from trading the news while reducing any risk.
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This intel was contributed by perp93
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May, 2012
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