Trading decisions are generally based on price movements that happen in the market. But what causes the price to move? While there are several factors that make a price move, those factors can be grouped under one category called “news.” News means market news, information, data, news releases, and more which can cause the price to move up or down. This news can be both domestic or international.
News That Moves – How & Why?
All decisions, whether trading-related or otherwise, are based on the conclusions or the interpretations that we make based on the information that we gather. The source of this information can be what we experience first-hand or what we heard/read from other sources.
When it comes to forex trading, traders get such information from news releases which traders react to. These reactions can be positive (buy) or negative (sell). They normally decide to buy if they conclude from the news that something good or favorable is going to happen. Similarly, they decide to sell if they conclude that something bad or unfavorable is going to happen. The collective result of all these reactions put together causes the price of an asset to move up or down.
The price moves up when a larger number of traders decide to buy and moves down when a larger number of traders decide to sell.
So, news influences trading decisions which in turn influence the price. In short, news moves prices.
News That Moves – What’s the Right Kind?
Having said that news moves prices, the next immediate question is “Does all news move prices?” The answer is an out-and-out no. Only news related to central banks, key economic events, and general indicators that move prices. Why? Because only those events can impact the price of currencies in the forex market.
Now let us look at some of the news that moves prices.
Non-Farm Payrolls: Released on the first Friday of every month, the NFP reports show the increase or decrease of paid workers in the US in any business except farm employees, non-profit organization employees, government, or private household employees. It includes employment data from the previous month like the unemployment rate and wage changes that indicate how the economy is growing. Hence, they have a direct impact on the forex market.
Interest Rate Decisions: News about interest rates is determined by eight central banks across the world, which have a telling impact on the forex market. The higher the rate of return, the higher the profit, and the higher the interest accrued on the currency. Central banks determine the interest rate based on inflation among other factors. These banks base their interest rate decisions on certain economic indicators as well as the consumer price index, consumer spending, and the housing market.
Retail Sales Report: Retail sales make a significant portion of a country’s gross domestic product, close to 70%. It is an indication of how fast a country’s economy is growing. The retail sales report is prepared considering sales of all types of goods, including those sold online. Retail sales have a direct correlation with inflation. The higher the sales, the stronger the inflation. So if there is a higher rate of sales, it will make the currency bullish and vice versa.
Trade Balance: Balance of Trade or BOT is the difference between a country’s exports and imports. When exports are more, there is a trade surplus and when imports are more, there is a trade deficit. This determines the supply and demand of a country’s currency, which in turn determines the currency’s appreciation and depreciation. Therefore, trade balance reports carry with them a high market impact, because they contain factors that significantly affect the state of a country’s economy.
News That Moves – Raw vs Processed
Traders don’t blindly use these news releases to arrive at a trading decision. They are processed well by traders in different ways. Traders take their time, do a careful analysis, and make their own interpretations.
However, they do not stop there. They go one step ahead and anticipate what might happen in the future based on the data they have at hand. Why so? Because if you wait for some kind of news to get the actual figures and then go to the trading platform to buy or sell, you will see that the change has already been reflected in the indices market and that there is little you can gain from your interpretation. This happens because the bigger players of the market forecast or anticipate the news a few days before the actual news release and play accordingly in the market. Therefore, interpretations alone won’t suffice. You would need to anticipate future events based on the news that you have at hand.
News That Moves – Good vs Bad
Therefore, the way in which news moves prices depends a lot on how traders interpret and anticipate the news. Hence, one cannot designate certain news as good and certain others as bad. This is because what is good for one currency may be bad for another. Similarly, the way a trader anticipates price moves also determines what good news is and what bad news is. However, in general, there are factors that are straight forward such as a higher GD or a lower unemployment rate and which are considered good news, and the reverse is considered bad news.
News That Moves – The Bottom Line
To conclude, news moves prices in various intricate ways after going through a lot of processing. When used in this manner, news becomes an invaluable source to perform well in the forex market.