As a price action trader, you do not care about the news impact on a particular market. Instead, you need to focus on price action patterns and price movements. While you should pay attention to Forex news events, you should not try to manipulate or outsmart the market. If you want to make money, you should learn the patterns and trends that are generated by news events. You should also learn the history of a currency and its trading history, but you should not make trades based on past events.
Here are the impacts of news on:
The forex market
While a lot of Forex traders focus on economic data, unexpected events like a terrorist attack or a presidential election can have a significant impact on currencies. Economic news is often based on the current state of a country’s economy. Unemployment rates, for example, are closely monitored, as higher employment rates usually mean stronger currency values. The non-farm payroll report is an example of this, released each month on the first Friday. Traders are constantly on the lookout for any signs of economic change. A decrease in unemployment, for example, could mean lower USD values. A rise in unemployment, on the other hand, could cause the USD to drop.
Forex traders must be able to monitor the news, as even seemingly trivial news can cause big moves in currencies. They need to be aware of the release dates, which releases are important, and how to trade based on this market-moving data. The key is to stay on top of the news and trade in anticipation of the release.
Economic data releases are often preceded by major geopolitical events and political turmoil. Both of these events are likely to influence currency rates. Economic data releases are the most obvious sources of news, but political news is also important. Political events such as elections and treaty negotiations can have a direct impact on currency exchange rates. Even global events can affect global currencies. The impact of geopolitical news on currency rates depends on which country is affected by the news.
Risk-on, risk-off trading
The news on currency pairs can also influence their price movements. During times of financial stress, safe-haven currencies like the US dollar attract capital. When things settle down, these currencies tend to experience outflows. Similarly, events such as stock market returns and political turmoil can influence risk-on trading.
The relationship between risk-on and risk-off trading has remained largely unchanged for decades. However, as financial markets have become increasingly interconnected and global uncertainty and risk rise daily, the traditional risk-on, risk-off trading paradigm has changed. While historically, certain types of risky assets will continue to remain popular as investors adjust their sentiment, new asset classes and trading vehicles may also start dominating the space.
While in a risk-on environment, stock markets increase. This means that investors stay optimistic about the economy and are willing to take risks. When prices increase, speculators will take advantage of that by buying high-yielding instruments, such as the stock market. The value of these investments will rise, and the stock market will rise as a result. But in a risk-off environment, investors may be tempted to exit a trade based on this news alone.
Currency volatility
News announcements can influence foreign exchange implied volatility. The recent outbreak of the coronavirus in South Africa increased developed-market currency volatility but in a different manner. While news from South Africa caused some volatility, the U.S. dollar’s volatility gauges rose the most since October 2020. Rising consumer prices and interest rates may lead to increased currency volatility. And as we all know, these changes in the global economy affect global economies. The news that triggered the outbreak has caused currency fluctuations in the past.
The US Bureau of Labor Statistics releases non-farm payrolls on a monthly basis. These numbers are considered the best indicator of the US economy and often cause market volatility. The US Federal Reserve uses this data to determine interest rate policy, so a high unemployment rate may prompt the Fed to cut interest rates. This, in turn, may cause the price of one currency to go up or down, preventing you from getting the desired move.