Why Forex News Trading?

As the world’s largest financial market, forex currency is sensitive to various economic news releases. News events have great impact on the intra-day currency fluctuations. Key events might initiate a relative longer term effect as well.

Key News Releases

There are eight major currencies traded around the world, U.S. Dollar (USD), Great British Pound (GBP), Euro (EUR), Japanese Yen (JPY), Australian Dollar (AUD), New Zealand Dollar (NZD), Canadian Dollar (CAD), and Swiss Franc (CHF). Since U.S. dollar is traded against the rest of the majors, the following U.S. forex market news are considered important forex trading news, hence are closely watched by forex traders around the world.

• Unemployment Rate (Non-Farm Payrolls)
• Interest Rate (FOMC Statement)
• ISM Manufacturing PMI
• Ism Non-Manufacturing PMI
• Pending Home Sales
• Trade Balance
• Consumer Price Index (CPI)
• Producer Price Index (PPI)
• Existing Home Sales
• New Home Sales
• Pending Home Sales
• Consumer Confidence
• Durable Goods Orders
• GDP

Traders can either use paid services provided by Reuters or Bloomberg to access real time forex news, or just use free forex news online like Forex Calendar.

Price Action Around News Release

The moment of news release might experience the most volatility through the trading session. It can spike either way with hundreds of pips in just a couple of minutes.

The common understanding of news affects on a currency is that if the actual number is better than expected, the positive affect is good for the currency, while worse than expected release is bad for the currency.

This is far from the truth in the real trading world. It’s not uncommon to see a good number with a weak dollar, or a bad number with a strong dollar. Naively interpreting news number has been proven very expensive in forex news trading. It is unlikely that the true direction of the currency can be predicted just by the use of news release.

Best Forex News Trading Strategies

Forex news trading is not a “who wants to be a millionaire” fast finger game. Straddle the news or trade with the news number can be easily fooled by the market with stops been hit both ways or utterly wrong with the direction decision. The best strategies for forex news trading needs patience to wait till the frenzy fluctuation cools down, let the market shakes out weak hands, and participate the high probability low risk entry at exact the right time and right spot.

Last Friday (08/07/2009) was a perfect example of exercising this best forex news trading strategies. The unemployment rate (NFP) is better than expected, which suppose to signal strong dollar. But the initial market reaction of EURUSD is a sharp rise of the rate. After the mechanic news number trader had been stopped out, EURUSD made a nose dive and didn’t look back during the rest of New York session. It might be the worst thing to forex traders in currency trading – finding the right direction of the trend, while still losing money.

While there is substantial risk associated with forex news trading, it can become a powerful weapon for your trading arsenal using wisely. Experience of how market reacts to news release is needed to trade forex news effectively and profitably.