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NEWS TRADING (By Henry Liu)
1. Friday February 5, 2010 (7:00am NY Time) CA
Employment Changes Forecast 15.2K Previous -2.6K
Unemployment Rate Forecast 8.5% Previous 8.5%
If the employment number is higher, we would SELL USD/CAD, and if the employment number is lower, we would BUY USD/CAD. This news indicator measures the numbers of new jobs created during the previous month, however in this case, we will see how many jobs were actually lost, and less negative numbers mean better economy. Our surprise factor will be at least 30K. Historically, it has moved the market by at least 50 pips if the surprise factor is hit by at least 80% of the time.
2. Friday February 5, 2010 (8:30am NY Time) US
NonFarm Payroll Forecast 10K Previous -85K
Unemployment Rate Forecast 10% Previous 10%
We’ll be trading the NFP release today, which is expected at +10K with a previous release of -85K; if you remember what happened last NFP, you’d know that the last release disappointed the market and kept USD under pressure for the better part of the months as after a revision of November NFP to a positive number, the December release brought back concerns over the rate of economic recovery. At the time of writing this analysis, market is in full risk aversion mode.
With the forecast on NFP turning positive for the first time, we could see a bullish sentiment on the USD as a result of market psychology. However, there are several things that we need to consider for tomorrow’s NFP release. First of all, there is a possible increase in the total jobs count as the Obama administration hired over 550K temporary workers for the national census. Should this number make in the January 2010
count, expect to see a blow out positive number in the NFP release and a possible 1.0% decrease in the unemployment rate. Secondly, the BLS or Bureau of Labor Statistics will release its annual benchmark revision for the payrolls. Expect to see a significant downward revision on the first quarter of 2009, which may offset the NFP release numbers all together if the revision is significant.
Therefore, let’s talk about how to trade this release: We’ll wait for the numbers to come out, but will not take any trade YET, even if we get our tradable figures (-60K or 80K). We’ll wait for a possible revision to the previous release number, which is -85K, as the market usually overreacts with the Revision and chances favor for this trade to work out if we do not get conflicting releases between the revision and the actual release; then we will wait for the Benchmark Revision… at this point, still stay out of the market.
Then the next step is to wait for the Unemployment Rate, which is at 10.0%. If the Unemployment Rate were to surprise higher, we’ll have to really make an executive decision at the time of the release and see what is the primary focus of traders. As long as we don’t surprise the 10.5%, I think the market will probably pay more attention to the NFP release. Of course if the census workers were to be included in this release, then expect to have a much lower than expected unemployment rate…
After all of the numbers have been released. Wait for the market to push… then be patient and wait for a decent retracement before getting in. Look for recent support/resistance areas for entry as a high impact news with various components will usually be extremely volatile, and those who are patient will always get a chance to enter at much better entry.
DEFINITION
“Measures the change in number of employed people during the previous month, excluding the farming industry. A rising trend has a positive effect on the nation’s currency. Job creation is an important indicator of economic health because consumer spending, which is highly correlated with labor conditions, makes up a large portion of GDP. This report is the first of the month that relates to labor conditions, making it susceptible to big surprises.”
Learn this 10 minute a day Swing Trading Strategy. Get your Forex Scalping Cheatsheets. Forex News Trading is a highly profitable way of making pips if you know how to trade the news correctly. You make money from the volatility in the forex market. When some news of fundamental importance is released to the market, the market reacts in a nervous and jittery manner. Many traders look for this type of volatility in the market to make a killing.
But many traders get themselves killed by the market instead. So only trade news if you are experienced and know how to do it. The markets are highly volatile at the time of news release. Most traders prefer to stay out of the market at those times. You never know how the market is going to react to a surprise news so many professional traders will advise you to keep yourself away from the market at those times. By closing all your open trades before the release of the news you make yourself safe.
Then why do some traders try to jump into the market at such times. The reason is if you know how to trade the news correctly, you can sometimes make hundreds of pips in minutes. This type of windfall gains lure this mavericks into trading the news when everyone wants to hold the breadth.
An important question that comes to your mind is what type of news makes the market nervous. Anything that is unexpected is going to make the markets nervous. Suppose the market is expecting a certain housing sales figures but when the housing sales figures are released, they are unexpected! This will make the market nervous. The prices will suddenly start shooting up and down without any reason. It takes sometime for the market to understand the importance of the news and settle down. This time may be a few minutes to a few hours.
What you need to do is take a look at the monthly economic news release calender and mark the times when news of fundamental nature like the Non Farmpayroll (NFP) figures, GDP figures, Consumer Confidence figures, sudden interest rate changes by the Central Banks, CPI figures and so on are released. Just Google Economic News Release and you will find this information for US, Canada, EU etc.
Just observe how much volatile the market becomes at these times by trading on your demo account. The liquidity in the market thins out, the spreads widen and it becomes really difficult not to get your stops tripped. If you are risk averse then you need to stay away from the market at such times.
For those risk takers who want to make tons of pips in such times, news trading is a great opportunity. Within a matter of few minutes you can make up to a hundred pips easily if you are trading at the right time! The most market moving report is the NFP report!
You should understand the discounting effect in the forex market. Often new traders get confused and ask why a particular currency has rallied despite the negative economic figures about that country. Sometimes, the currency can decline on the release of positive news.Learn swing trading.
Try Netpicks forex signals free.These types of effects confuse and bewilder new forex traders. When there is good economic news about United States, commonsense says that US Dollar should appreciate. Similarly when there is bad economic news and there are signs of economic weakness, like unemployment and huge budget deficits, commonsense tell that US Dollar should depreciate.You should develop a mechanical and rule based forex trading system.
What is the reason that a particular currency goes up despite bad economic performance of that country or the currency goes down despite good economic performance of that country? This can be attributed to the discounting mechanism of the forex market.
Traders try to take into consideration the future expectations about the currency in their present trading decisions. The market’s inbuilt discounting mechanism is formed by the anticipatory reaction of the traders.
If the traders think that Japan will suffer from the rising oil prices in the near or medium term, they will be bearish on JPY and go short now, thus pushing down the currency. But if the traders have a positive view of the Japanese economy, they will be bullish on JPY and go long now, thus pushing up the currency.
Currency prices integrate the market’s expectations about the future in this way. You must have heard the famous saying: “Buy on the rumor and sell on the news.” This is somewhat similar to this saying. Market has already made up its estimates of those figures based on the work of analyst and economists in the major trading institutions like banks or funds even before the economic data is released for public consumption.
Suppose, the majority opinion in the market is that the US Consumer Confidence Index to show a worse figure than the previous month. Way before the US Consumer Confidence Survey results are released to the public, market has already compounded that information in the exchange rate of say EUR/USD.
When the US Consumer Confidence Survey figures are released, what will move the market is the amount of deviation between the expectation and the actual figures. The currency pair EUR/USD was rallying due to poor market sentiment for USD.
This is old news for the market if the released figures are almost the same as expected. No surprise was caused in the market. This information has already been compounded into the currency prices.
The release of the anticipated news or data can often cause the currency price to move in the opposite direction initially to where the market had positioned itself before the release of the news. After sometime the market adjust itself and the status quo prevails.
Suppose the US Consumer Confidence Index figures turn out to be almost the same as expected. EUR/USD pair may even end up declining with the USD strengthening even in the face of a negative consumer confidence number.
This contrarian market reaction is the result of traders who had gone long on EUR/USD closing their positions and taking profit on the news release. Thus the lack of any deviation between the expected and the actual figures may cause the currency pair to move sideways or even move in the opposite direction as the status quo remains.
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Publicly released news is disseminated to the various newswires. Any trader who has access to these newswire services can tap into that information and react accordingly in the forex market. You should develop your own forex trading system.
However, you must know that the institutional players do get information that retail traders don’t have. Institutional players have access to the order book of their clients. They know the location of their market orders. They may also know something that others don’t through their contacts in the industry.
At times, this isolated news access may not translate into real market action if other players don’t have that information. However, sometimes the news may give an unfair advantage to the institutional players.
In other words, forex market is dependent on news. There will be negligible or little price movements in the market if there is no news. You can say the currencies move based on the technicals. Even then, these technicals have been established previously by news or expectation of future news.
The market reaction to the news is specific as it depends on both the type of medium that the news is transmitted on and the type of news that is being released. The market reaction to the news is staggered.
The online news service relay the information to the computer monitors of the traders at almost the same time as the market event occurs with very slight delay. Most active traders get their information from these online market news services.
However, there are many other less active traders who feel they don’t need real time news so they don’t subscribe to these online news services. They rely on market commentaries written by analysts and published on websites or in newspapers. The market reaction can thus be staggered.
Market reaction may be immediate within the first few second from those who receive real time news to a more delayed reaction from those who obtain the same news hours or even days later.
Forex economic calendar is usually packed with an average of twenty economic news releases per trading day. The market reacts differently to different news. Some news may produce little or no reaction at all.
During times of scheduled news releases, currency prices adjust very rapidly to the released data. You have to be selective to what news to focus on as the market reacts to a varying degree in relation to the type of news that is released.
Forex market reacts to what of the news rather than the why. For example, the currency prices will move as the market reacts to the better than expected unemployment figures. The market will not have time to consider why the unemployment figures are better this month as compared to the last month. Trading is all about taking advantage of what of the news. If you are more concerned about the why of the news rather than what of the news than you should stop trading and become an analyst.
Develop your own forex trading system.Trading news can be a very profitable strategy if you know when and how to enter the market. There are easily 15-20 daily economic data releases relating to the major currencies USD, EUR, GBP, JPY, CHF, CAD, AUD and NZD. Forex market react the most to the release of the US economic news.Know the forex market.
Know these forex training secrets. An initial part of the news straddling strategy is to pick out the various market moving announcements that can have a big impact on the forex market. The currency market mostly responds violently to the release of US economic data figures. This is not surprising given that US is the largest economy of the world. US is also the world’s major trading partner. This is the main reason why the US economic news announcements have the greatest potential to influence other countries economies and their respective currencies.
The release of unemployment figures, interest rate decisions, inflation, consumer confidence, trade balance, home sales, industrial production, retail sales, manufacturing and business sentiment figures is of significance to the market especially if it relates to US or Euro zone.
You should note the dates on your trading calendar if you want to trade these economic news releases. Other than the dates, you should also note the time of that economic data release. Many economic reports are released once a month. These news releases are usually made around 12:00 GMT or 13:00 GMT. At this time, it is morning in US and the European markets are still open.
News straddling strategy is an intraday trading strategy that tries to take advantage of the high amount of volatility that is usually generated with the news announcement. So it maybe more advantageous to focus on the more volatile currency pairs!
The news straddling strategy should be applied on currency pairs that involve the USD. The most market moving news relates to US. Some good candidates for this strategy are USD/JPY, GBP/USD, EUR/USD and USD/CHF.
Certain currency pairs among the majors respond better than others when it comes to trading major economic news release. The four major pairs ERU/USD, USD/CHF and GBP/USD tend to be better candidates than USD/JPY as the European markets are usually open at the time of US news release. However, the Asian markets where the Japanese Yen is mostly traded are closed by that time.
Economic News Straddling strategy is only employed upon the release of significant scheduled news. Moderate to very high price volatility can be expected during the time of the news release. We can expect to profit from the resulting sharp market moves.
For this strategy, you should mostly concentrate on the EUR/USD pair based on its superior liquidity compared to the other major currency pairs. This strategy requires very nimble and fast entry and exit because currency prices usually respond very quickly in a knee jerk reaction to a move in one direction and may correct themselves very quickly.
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