Every country reports regular news on the health of the economy. These news announcements have the potential to cause large movements in currencies, which can cause huge profits or losses for Forex traders. This article explains what to look out for and how to be prepared for the news Pimpandhost.
There are a large number of reports on the economy and they differ by country. They can be grouped into three categories, economic indicators, surveys and speeches or announcements made by government or banking officials. There are many economic indicators, some of the important ones include GDP (Gross Domestic Product), Employment Numbers, Retails Sales and CPI (Consumer Price Index). Surveys include Business and Consumer Confidence about the future and spending or investment plans. Speeches made by the U.S President, Reserve Bank Governor or Federal Reserve officials are carefully examined for hints of changes in policy that may affect the economy. One of the most important announcements by the Federal Reserve in the U.S. or reserve banks in other countries are the decisions to change interest rates. Most announcements are monthly, although some are quarterly, yearly and even weekly.
Currencies are impacted by the reports according to two factors, the relative importance of the announcement and the difference between what the market was expecting and the actual result. For example, the GDP number is more important than a report on natural gas storage. If a result is close to the estimate then it is likely to have a lower impact than one that is different to what was anticipated. The following is an example of the impact on the USD/CAD by Canadian GDP announcements. In July 2008, the estimate for the growth of the GDP of the Canadian economy for the quarter was estimated at 0.2%. The actual result was 0.7%, showing the economy had expanded much faster than expected. The impact of this was a movement of +175 pips within one day of the announcement. On the other hand, in September 2008, the GDP announcement estimate was 0.2%, the actual result was 0.1% and at the end of the day the currency movement was only + 10 pips, as it was close to expectations.
Being prepared for the news is easy. There are many Forex websites that have a calendar that lists the scheduled announcements for each day for the current week. The list details the time of the announcement, the currency impacted and expected level of impact, low, medium or high. It also shows the previous change and the expected change for this announcement. Once the actual result is announced, it is displayed as well.
Currencies may experience large movements on the days when there is a major announcement. If a result is not what was expected, a currency can experience dramatic change in a very short period. During this period it can be very difficult to enter or exit the market at the level that you planned. It is wise for beginner traders to check the calendar and only trade on days when there is not a high impact announcement. More experienced traders may prefer to trade on days when there is a major announcement, as there is a high potential to make profits in a short time.
The key to being prepared for the news announcements is to be aware of what is coming up for the week or day. Traders should check the calender every day to be aware of the upcoming announcements. Traders that are just starting out may want to exit trades well before major announcements to avoid the potential large movements. More experienced traders plan for the higher risk and may want to take a position before the announcement speculating on a large potential move one way. In either case, traders must be prepared for the news to be successful in Forex trading.