How To Trade Forex On News Releases

One of the big advantages of currency trading is that the forex market is open 24 hours a day, five days a week (from Sunday, 5 P. M. EST to Friday, 4 P. M. EST). Economic data tends to be one of the most important catalysts for short-term movements in any market, but this is especially true in the currency market, which not only responds to U.S. economic news but also news from around the world.

With at least eight major currencies available for trading in most currency brokers and more than 17 derivatives, there are always some economic data scheduled to be released that traders can use to inform them of the positions they take. In general, no fewer than seven data sheets are released every day from the eight major currencies or countries that are most followed. So for those who choose to trade news, there are many opportunities. Here, we see when economic news releases are released, which are most relevant to forex traders (FX) and how traders can act on the data that drives this market.

Which currency should you focus on?

These are eight major currencies:

1. US Dollar (USD)

2. Euro (EUR)

3. British pound (GBP)

4. Japanese Yen (JPY)

5. Swiss franc (CHF)

6. Canadian Dollar (CAD)

7. Australian Dollar (AUD)

8. New Zealand Dollars (NZD)

And this is just an example of some of the more liquid derivatives based on the currency above:

1. EUR / USD

2. USD / JPY

3. AUD / USD

4. GBP / JPY

5. EUR / CHF

6. CHF / JPY

As you can see from this list, the currencies that we can trade easily reach the globe. This means that you can choose your own currency and economic release for your attention. However, as a general rule, because the US dollar is on the "other side" of 90% of all currency trading, the release of the US economy tends to have the most tangible impact on the market.

Trade news is harder than it sounds. Not only are consensus figures reported important, but also whisper numbers (unofficial and unpublished estimates) and revisions. Also, some releases are more important than others; this can be measured in terms of the significance of the country that released the data and the importance of the release in relation to other parts of the data released at the same time.

When is Press Release Published?

Figure 1 lists the estimated time (EST) where the most important economic releases for each of the following countries are published. This is also the time when you have to pay extra attention to the market if you plan to release the news.

Country	Currency	Time (EST)
U.S.	USD	8:30 to 10 a.m.
Japan	JPY	6:50 to 11:30 p.m.
Canada	CAD	7 to 8:30 a.m.
U.K.	GBP	2 to 4:30 a.m.
Italy	EUR	3:45 to 5 a.m.
Germany	EUR	2 to 6 a.m.
France	EUR	2:45 to 4 a.m.
Switzerland	CHF	1:45 to 5:30 a.m.
New Zealand	NZD	4:45 to 9 p.m.
Australia	AUD	5:30 to 7:30 p.m.

Figure 1: The time when various countries release important economic news

What Are the Key Releases?

When exchanging news, you have to know which release is actually expected that week. Second, it is important for you to know which data is important. In general, this is the most important economic release for any country:

1. Interest rate decision

2. Retail sales

3. Inflation (consumer prices or producer prices)

4. Unemployment

5. Industrial production

6. Business sentiment survey

7. Survey of consumer confidence

8. Trade balance

9. Survey of the manufacturing sector

Depending on current economic conditions, the relative importance of this release may change. For example, unemployment may be more important this month than trade decisions or interest rates. Therefore, it is important to stay aware of what the market is currently focusing on.

How long does the effect last?

According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), markets can still absorb or react to hours of news releases, if not days, after they are released. The study found that the effects on returns generally occur on the first or second day, but the impact seems to last until the fourth day. The impact on the order flow, on the other hand, is still very pronounced on the third day and can be observed on the fourth day.

How Do I Trade News?

The most common way to trade news is to look for a period of consolidation in front of a large number and only trade fugitives behind the numbers. This can be done on a short-term basis in one day (intraday) and daily. Let's look at the table in Figure 2 as an example. After a weak figure in September, the market held its breath in front of the October figures, which will be released to the public in November.

In the 17 hours before release, EUR / USD was limited in a tight 30-pip trading range. (Pip is a measure of the smallest change in a currency pair on the foreign exchange market. Since most major currency pairs are priced up to four decimal places, the smallest change is from the last decimal point.) A big opportunity to trade a breakout, mainly because of the possible sharp move this is very high.

Figure 2: This graph illustrates market uncertainties leading to October non-farm payroll figures, released in early November. Pay attention to the increase in volatility that occurred after the news was worse than expected.

Source: eSignal

We mentioned earlier that trade news is more difficult than you think. Why? The main reason is volatility. You can make the right move but it is finally stopped or the market may not have the momentum to maintain it.

Let's look at the table in Figure 3 for an example. This chart shows the activity after the release that is the same as shown in Figure 2, but at a different time frame to show how difficult trade news releases. On November 4, 2005, the market expected 120,000 jobs to be added to the U.S. economy, but instead, only 56,000 jobs were added. This sharp disappointment caused a sell-off of around 60 pips in the dollar against the euro in the first 25 minutes after the release.

However, the momentum of the dollar's rise was so strong that profits quickly reversed, and an hour later, EUR / USD had broken the previous low and actually reached a 1.5-year low against the dollar. A lot of opportunities for traders to breakout but the bullish momentum in the dollar is so strong that the number of poor payrolls fails to place a sustainable dent in the currency rally. One thing you must remember is that, behind good numbers, strong steps must also see strong extensions.

Figure 3: This intraday chart shows that, while worse-than-expected non-agricultural figures send the EUR / USD level up for a short period of time, the strong momentum of the US dollar is able to take control and push the dollar higher. Keep in mind that when the EUR / USD exchange rate falls, the US dollar will rise, and vice versa.

Source: eSignal

Can I avoid being exposed to Volatility When Trading News?

The answer to catching a breakout in volatility without having to face the risk of reversal is to trade the SPOT FX option. A number of different FX brokers offer a variety of exotic options. Exotic options generally have a barrier level and will be advantageous or unfavorable based on whether the barrier level is violated. Payments are predetermined and premiums or option prices are based on payments. The following are the most popular types of exotic options to use to trade news releases: 

• Two touch option
• One-touch option
• Options without double touch

The double touch option has two barrier levels. One level must be violated before it expires so that the option becomes profitable and for the buyer to receive payment. If no barrier level is broken before it expires, the expiration option is worthless. A double-tap option is a perfect option for trading news releases because this is a pure non-directional breakout game. As long as the limit level is violated - even if the price reverses later - the payment is made.

The one-touch option has only one level barrier, which generally makes it a little cheaper than the one-touch double option. The same criteria apply - payments are only made if the barrier is violated before it expires. This is a good option to buy if you really have a view on whether the amount will be stronger or weaker than market consensus estimates.

The double no-touch option is the opposite of the dual one-touch option. There are two barrier levels, but in this case, the barrier level cannot be broken before it expires - if not, option payments are not made. This option is great for news traders who think that an economic release will not cause a real escape in the currency pair and that it will continue to trade around.

SPOT FX options are a viable alternative for those who don't care to get whipsaw on the market with undue volatility before they actually see spot prices moving in the direction they want.

The Bottom Line

As we have seen, currency markets are very vulnerable to short-term movements caused by the release of economic news from the US and around the world. If you want to trade news successfully on the FX market, the main consideration to remember is knowing which releases are expected when, which are most important given the current economic conditions and, of course, how to trade based on this market transfer data. A variety of exotic options are available for traders who want to catch escape in volatility without having to face the risk of reversal. Do research and stay on top of economic news and you can get results.

How to Choose a Forex Broker?
TopAsiaFx.com helps you compare and choose your preferred Forex Broker. We suggest keeping the following checklist in mind when making your decision:

• Is the Forex Broker regulated?
• Account Details: Ideally, your broker should offer either a selection of account types or some element of customizability. Competitive spreads and easy deposits/withdrawals are good indicators too.
• Number of Currency Pairs offered: The variety of currency pairs on offer, as well as the quantity, should be considered (the more of both, the better).
• Availability of Customer Service.
• Quality of the Trading Platform: look for a platform that is easy to use, straightforward and offers a collection of technical and analytical tools to enhance your trading experience.

Rank	Broker Name	Special Offer	Minimum Deposit	Spread	User Score	Maximum Leverage	Regulation	Start Trading
1	NordFX	55% Deposit Bonus	$10	0.0 Pips	96	1:1000	VFSC	Open Account
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3	OctaFX	50% Deposit Bonus	$100	0.4	94	1:500	IBC	Open Account
4	Exness	No	$1	0.1	93	1:2000	FCA,CySEC,IBC	Open Account
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6	Tickmill	$30 Welcome  Account	$100	0.0	91	1:500	FSA,FCA	Open Account
7	Axiory	$50 Deposit Bonus	$200	0.0	90	1:400	IFSC	Open Account
8	Justforex	100% Deposit Bonus	$1	0.0	89	1:3000	IFSC	Open Account
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10	XM	$30 Welcome Account	$5	0.0	87	1:888	ASIC,FCA,IFSC	Open Account
11	FBS	$50 Welcome Account	$1	0.0	86	1:3000	IFSC	Open Account
12	HotForex	No	$5	0.0	85	1:1000	INC	Open Account