September 24, 2020
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Finance

Forex traders can trade the news 

As you will probably already be aware, there a number of factors that have a direct impact upon the Forex market and thus the value of its currency pairs. 

There is no exact science to ensure trading success, of course, but if you can quickly get a handle on the major news stories that break around the world – and understand how these will impact upon the markets – your likelihood of executing ‘winning’ trades increases exponentially. 

The quicker you are to act, the greater your likely reward – so what are the signals that forex traders should be looking for in the news agenda?

Major global events

This is a timely article to write given that we have recently experienced the COVID-19 pandemic.

Of course, this is – or is likely to be – a once in a lifetime event, but it has provided forex traders with some real intuition as to how to handle trades in conditions of uncertainty and, in some instances, unbridled panic.

This is an outbreak in which barely any single country is unharmed – certainly not the major players in the forex market, anyway, and in the words of Warren Buffett, ‘be greedy when others are fearful.’ There were some fantastic opportunities to be had for traders at platforms like the eToro broker.

One of the most interesting angles here was to trade positively when one country appeared to be coming out on the other side. New Zealand, for instance, was one of the first major nations to announce they were lifting restrictions, whereas the US and Canada are still in the doldrums.

Guess what: the NZD/USD and NZD/CAD pairs enjoyed a nice bump as a result. 

Economic news

Few conditions quite get forex traders reaching for the open position button quite like a major economy taking a hit.

It is the US economy, which makes up one half of a large slice of the forex pairs, that tends to be the greatest difference-maker. When the economic figures are positive here, it normally gives USD-sided pairs a boost, and vice versa when the opposite is true. 

There are usually long periods of consolidation in the forex market when nothing major happens economically speaking, and so effectively trading breakouts on the back of a news event is key.

Interest rates and inflation

These are two of the key indicators as to the strength of a nation’s economy.

When low interest rates are in situ, people are able to borrow more money and thus spend more. That is great news for the economy. 

Inflation is odd because it refers to an increase in the price of goods and services and also in the cost of living. Medium levels of inflation are still considered a strong indicator for the economy because they show that the system is working well – however, high inflation is bad news because it means people can buy less with their money.

The relationship between interest rates and inflation is hugely important to the value of a country’s currency – if the former is low and the latter is even lower, or at least controlled, the economy will bloom and the value of the US/CAD/GBP/EUR or whatever nation we’re talking about will blossom accordingly. 

Political changes

In the US, we have a political system in which the approach of the two major parties is almost night and day.

The Republicans, particularly with Donald Trump in charge, are likely to create conditions in which businesses can thrive.

The Democrats, and especially had Bernie Sanders and his socialistic tendencies prevailed, are more people-focused.

You could argue about which approach is ‘best’, but the US Presidential Election is typically a time when the USD forex pairs will deliver some excellent opportunities courtesy of their volatility. 

Beware of the whispers

The best piece of advice we can give you is to only trust news stories from the most authoritative sources. 

Buying in to a forex pair based on rumor or conjecture is a mistake to be avoided at all costs – nuggets such as ‘buy the rumor, sell the news’ do not always hold true, and indeed can lead to bad trades being executed.

But once you are aware of the main signals and triggers for forex price movements, and have a number of useful sources for these bookmarked on your devices, you are a good way towards making some handsome profits from your trading.