5 Forex News Events You Need To Know
1. Central Bank Rate Decision
Each month the various Central Banks of the world?s economies meet to decide over the interest rates they are responsible for. The decision they have to make is whether to leave rates unchanged, raise rates or lower rates and the outcome of this decision is extremely important to the currency of the economy and as such, to traders.
An increase in rates is generally seen as bullish for the currency (meaning it will increase in value) and a decrease in rates is generally bearish for the currency (meaning it will decrease in value) whilst an unchanged decision can be either bullish or bearish depending on the perception of the economy at the time.
Whilst the actual decision itself is crucial, so too is the accompanying policy statement here the Central Bank gives its overview of the economy and how they view the future outlook. This is also where monetary policy is announced, which concerns vital matters such as the implementation of QE, which we explain thoroughly in our Forex Master course.
Some of the best trades you can make come from rate decisions, for example, since the ECB cut the EuroZone rate to 0. 05% in September 2014, EURUSD has since fallen by over 2000 pips.
The Gross Domestic Product is an important indicator of economic health in a country. A country?s central bank has expected growth outlooks each year that determine how fast a country should grow, as measured by GDP.
When GDP falls below market expectations, currency values tend to fall and when GDP outdoes expectations, currency values tend to rise. As such this figure?s release is keenly observed by currency traders and can be used to cautiously anticipate Central Bank movements.
When Japan?s GDP shockingly shrunk 1. 6% in November 2014, the JPY fell sharply against the Dollar as traders anticipated further Central Bank intervention.
3. CPI (Inflation Data)
Consumer Price Index is the most widely used inflation measure out of the various economic indicators. The index gives information about the historical average prices paid by consumers for a basket of market goods and highlights whether the same goods are costing more or less for consumers.
Central Banks monitor this release to help guide them in their rate and policy setting. If inflation is seen to be evident and moving beyond a certain target then interest rate rises are used to counter this.
In November 2014, Canadian CPI beat market expectations of 2. 2% and came in at 2. 3% with Canadian Dollar subsequently traded up to a six-year high against the Japanese Yen.
4. Unemployment Rate
The unemployment rate of a country is crucial to markets given its importance to Central Banks as an indicator of the health of an economy. Higher employment leads to interest rate rises as Central Banks aim to balance inflation with growth and as such this figure draws huge market attention from traders.
Alongside the Unemployment rate, the two most important labor statistics are the US ADP and NFP figures released each month with the NFP taking the prime position. This figure is so important we do an NFP preview each month giving you our analysis on the release and how to trade it. Given the market?s current attention to the likely date of a Fed rate hike, this figure is growing in importance each month.
The ADP data is considered an important predictive tool for the NFP as it is released beforehand.
5. FOMC Meeting
Although the central bank meetings of all economies are extremely important, America?s Federal Open Market Committee meeting takes center stage as the US Dollar is currently the world?s reserve currency.
Each month the committee meets to set rates and to give it?s pronouncement on current economic conditions and the effectiveness of current monetary policy, casting an eye forward to expectations of future economic conditions and adjoining monetary policy.
The committee is made up of members which vote at each meeting with ?Hawkish? members those in favor of a rate rise and ?Dovish? members those favoring a lowering of rates.
The statement released by the Committee is keenly scrutinized by traders looking for clues as to how the Central Bank will behave in future and even the most seemingly inconsequential of terminology can cause large market moves, as seen recently concerning the Fed?s usage and then removal of the term ?patient?, regarding rate hikes.
FOMC meetings can cause huge market volatility as seen on March 18th, 2015 when EURUSD spiked up 400 pips in a matter of minutes as markets perceived the meeting to be USD negative.
These Central Bank meetings are where we also learn about any changes in monetary policy, such as the announcement of quantitative easing. This is extremely important to currency traders and we explain this topic fully within our course.
Since the ECB announced their latest QE program on Jan 22nd of this year, EURUSD has fallen by over 600 pips
The key thing with all economic indicators and news releases is not just what the actual release means but how the market anticipates the release and subsequently reacts to it, this is where the trading opportunities are created. It can be extremely difficult for new traders seeking to trade news events as the volatility and uncertainty can be overwhelming, fortunately, we have a fantastic suite of indicators which are perfect for trading news events.
Hope, this will help you.