How Forex Traders Use the News to Forecast Market Changes

The forex market is tumultuous because it is an active trading channel 24/6 on different markets worldwide. That can mean that to ensure a level of investment safety, traders place limits on their trades like a take profit and a stop loss.

However, in the long term, do you know why certain currency exchange rates went down or up? Can you forecast the forex market? You can to a certain extent with the forecast market news. Though it is not a guarantee, with experience, you can separate the wheat from the chaff and make better and more intuitive decisions with the news in mind. A good place for forecasting forex market for news traders is Bloomberg.

The Importance of News in Forecasting Forex Market

The news influences economic markets in general, and the forex market specifically. People will follow the herd and make decisions others have made. Any news event can be a catalyst to sway traders that will effectively make that event come true. Trading is about speculation, and by being with your finger on the news pulse, you can make more intuitive trades while the hype is high.

This is truer to forecasting the forex market than others because they change so fast between their values.

The US market might be the most dominant one, as major forex exchanges include the US dollar. However, thanks to the connected worldwide chain of production of the global economy, events from all over the world can affect the US economy, and in turn, the US dollar.

Focusing on Popular Currencies in the Forex Market News

There are currencies that a trader focuses on when trading on the forex market. The US dollar is an evident one as a bulk of trades are done in it, however, the top 8 traded currencies all have a significant portion of the forex traded currencies. All their countries also release news about their economics every workday.

The top 8 currencies in order of importance are:

●       US Dollar (USD).

●       Euro (EUR).

●       British Pound (GBP).

●       Japanese Yen (JPY).

●       Swiss Franc (CHF).

●       Canadian Dollar (CAD).

●       Australian Dollar (AUD).

●       New Zealand Dollar (NZD).

There are multiple currency pairs you can trade on with using just these eight currencies, for example:

●       EUR/USD.

●       GBP/USD.

●       USD/JPY.

●       GBP/JPY

●       EUR/JPY.

●       USD/CAD.

●       AUD/USD.

●       EUR/GBP.

You can look at the current currency exchange rates here for the short-term trading plan and adjust accordingly.

The Important Reports for Forex Market News

Still, 90% of currency exchange trades include the US dollar, so following the US economic releases is an absolute must for a forex trader.

However, how do you know which reports, from the US or any other major forex market, are worth following? The Economic Calendar on the our platform can help you with that, but more about it in a bit.

Valuable information comes from:

●       Decisions that relate to interest rates and to changes to it.

●       Changes in the volume of retail sales.

●       Changes in the inflation of a country and their effects on consumption and production.

●       Changes to the rates of unemployment.

●       Changes to their trade balance.

As a country’s economy is transient, the metric that you take more into your forex forecasting can change. E.g., during times of a trade war between two economic powers, you may consider if an increase or a decrease in trade can influence their currency’s exchange rate with their partners.

The Economic Calendar for News Traders

Our platform compiles news from different economic journals and sources to give you a comprehensive look over changes that can affect different instruments like forex.

In the beginning, you see articles starting from the latest and going backward. You can speculate what would be their effects on certain markets.

For example, reading an article about a price increase in the Eurozone may mean that the USD/EUR exchange rate will go down as it will take more US dollars to trade with Euro-holding countries.

Below it, you will see market analysis in the event calendar. The former will have an in-depth look at how different events have affected different instruments, including forex. The latter covers upcoming events and their importance, rated 1 through 3 in dots with more dots meaning it is more important. A trader can look at the economic calendar at the upcoming event and extrapolate what may happen by checking the market analysis from the past on the website, the iFOREX platform, or anywhere else. That way, you can make more intuitive trades in forex and on other instruments.

For example, a national bank that decided to increase its inflation rate may cause its currency to weaken, and you can forecast forex market trades to go accordingly. You can look at past events to estimate how much against a different currency and make the forex trade fit that estimation with limits in place. Check the forex market news and other trader news curated for you.

Forex Market News Spread Fast-ish

A study conducted by Martin D. D. Evans and Richard K. Lyons and published in the Journal of International Money and Finance in 2004 researched how long it takes for an economic market to react to the news and how long it takes for the effect to peter out.

The study showed that it can take the market hours and sometimes days to properly react to the news. This could be partial because international traders take time to react to them due to time differences or setting up commands while the market is inactive ahead of time, so it does not mean you can rest on your laurels for too long.

The study also shows that the effects on returns usually happen on the first day or the second day. However, the impact on returns does not linger any longer past the fourth day.

However, the impact on buy orders and sell orders is quite different. The impact on them is still profound on the third day, and still noticeable on the fourth day.

When Should You Be Forecasting Forex Market?

Experienced traders follow a common strategy of looking for a period of oscillating values between a certain range (consolidation) or uncertainty ahead and trading at a sharp change to the value (breakout) as the news breaks out. You check the live forex changes on our website and on our platform.

For example, right before reports of a certain central can go public, you can expect a drastic change in either direction in the currency exchange range. You can forecast when the breakout will happen by trading with the news.

Although, it is hard to fully forecast the market with the news because the expected volatility or stagnation can be different than what was expected. The right move can be curbed by not having the momentum of traders thinking the same. This is also why putting limits in the form of take profit and stop loss can help if a certain instrument in the forex market zigzags the other way.

An alternative way to possibly maximize profits, but also possibly losses, is to follow the news with the exotic options. These are all the currencies that are not part of the top 8 most traded currencies like the South African Rand (ZAR).

However, with how riskier the currency pairs are with them, like the USD/ZAR, you can put better limits in place. These can be the double one-touch option if one limit of it is breached before its expiration, for the buyer to receive their payout; the one-touch option, that’s less expensive but only works in one direction; and the double no-touch option, which is like the first option but neither limit has to be breached until the expiration for the payout.

Trading with Forex Market News

Useful sources of information are on your left-hand side on the iFOREX platform. By clicking on “Today’s Opportunity” you can get quite a few options on the latest trading opportunities available to you that the third-party experts have recommended for the available financial instruments offered on our site. Still, CFDs, especially when leveraged, are still with a significant risk, and one needs to have the ability to acknowledge and take that risk with limits such as taking a loss and taking profit as well as the proper expertise.

Another way to update yourself on the news with current market trends is to click on “The Trading Expert” right below it on the left-hand side tab. There, professional traders will keep you updated on their investments and the results of them. They will always back it up with data from their forecasts and the logic behind it. Though they will not only forecast the forex market, it may also mean that it may be time to diversify into other instruments like commodities and ETFs.

You can sign up today to our platform and see those features and more here.

In Conclusion

Trading forex with the news is risky, but it can be rewarding. The most important thing is to follow the news coming from the US regarding elements that can influence their exchange rates, but news from other countries can be helpful as well to determine better currency parings to invest in. Of course, it is important to follow current market data as well as the news to reap the rewards from your research.