April 29, 2020

Trading High Impact Forex News – Don't Get Caught Out

Trading High Impact Forex News – Don't Get Caught Out

High impact Forex news moves markets!

Whether you’re an active news trader or not, there’s no hiding from the fact that Forex news is an important market mover.

Most important high impact Forex news:

  1. Central Bank Meetings,
  2. Unemployment,
  3. Consumer Price Index (CPI),
  4. Gross Domestic Product (GDP),
  5. Unplanned Forex News.

High Impact Forex News Average Pip Movement:

High impact forex news

We’ve analysed this list of important Forex news releases in more detail, in order to tell you what you need to know to navigate the ensuing volatile price action.

Before you go any further, attach the FXSSI Forex news indicator to your MT4 charts and don’t allow yourself to be caught out.

1. Central Bank Meetings

The most important high impact Forex news release are central bank meetings and interest rate decisions.

With a mandate to control inflation and ensure the value of the nation’s currency remains steady, central bank meetings have the highest impact on Forex market volatility.

Important Meetings: FOMC, ECB, BoE RBA, BoJ
How often: Monthly

Usually at monthly intervals, central banks around the world meet to set interest rates and discuss policy plans going forward. Whether they raise rates, leave rates unchanged or lower rates all depends on the performance of their respective economy and how effective any decision would actually be.

What a central bank, such as the Federal Reserve at their monthly FOMC meeting, chooses to do with monetary policy, has a high impact on Forex markets. In this example, raising rates will likely be bullish for the USD, while a rate cut will likely be bearish.

The most important part of a central bank meeting on interest rate policy, is the accompanying statement that goes alongside any decision made. Forex traders are famous for analyzing the slightest change in wording from the previous month’s statement and can quickly send markets into a spin.

2. Unemployment

Unemployment data is released in a number of forms across different economies, but the highest impact release in undoubtedly the US Non-Farm Payrolls.

Non-Farm Payrolls report the change in the number of employed people during the previous month (excluding the farming industry, as the name suggests).

Most important release: US Non-Farm Payrolls
How often: Monthly

The US NFP number is released monthly by the Bureau of Labor Statistics, usually on the first Friday of the month. It’s seen as one of the best indicators on the strength of the US economy and as a result, will prove highly volatile to markets following a release.

This is because unemployment data is important to the Federal Reserve when it comes to setting interest rate policy. If unemployment is high, then the Fed is more likely to cut rates in order to stimulate hiring.

While the Forex major currency pairs experience the most volatility surrounding an NFP release, any of the most liquid currency pairs will experience similarly wild price action. This is because global markets are so interconnected that when the US economy slows down, the rest of the world is often dragged down with it.

3. Consumer Price Index (CPI)

The consumer price index (CPI) is the change in the price of a basket of goods and services. Put in simple terms, CPI measures inflation.

This is one of the highest impact news releases because as we said above, the main mandate for central bank policy is to control inflation.

Most important release: US Consumer Price Index
How often: Monthly

What’s in a basket of goods, you may ask? The basket contains a fixed set of products and services based on average consumer habits that the Bureau of Labor Statistics has collected. It’s not important what’s specifically inside, but that the spending habits shown are consistent.

When the price of goods and services go up, this is what’s known as inflation. The highest impact CPI news release comes out monthly, but due to its importance, the data is also compiled into quarterly and yearly readings.

As central banks such as the Fed use the CPI number to track inflation, there is a direct relationship between CPI and interest rate policy. When there’s high inflation, the Fed is more likely to raise rates to try and cool off the economy. When there’s low inflation, the Fed is more likely to cut rates in order to stimulate growth.

4. Gross Domestic Product (GDP)

A country’s gross domestic product (GDP), shows the annualized change in the inflation-adjusted value of all goods and services produced in the economy.

While its broad nature means that it’s hard for a central bank to make policy decisions from directly, GDP remains a primary gauge of overall economic strength.

Most important release: US Gross Domestic Product
How often: Quarterly

The US gross domestic product number is released by the Bureau of Economic Analysis, on a quarterly basis. As GDP is released at wide intervals, the bureau also releases preliminary figures at the end of each month.

While a central bank such as the Federal Reserve would never make a final interest rate decision on GDP alone, it does still serve as evidence used to base decisions around. If GDP is trending higher, then it’s a good indication that the economy is growing and interest rates could be on the way up.

The same can be said for a GDP number in decline, signaling an economic slow-down that could require rates to be cut.

5. Unplanned Forex News

Sometimes the unpredictable nature of the society we live in means things happen, things that move markets.

This section encompasses all other high impact Forex news releases that you may or may not find on your economic calendar.

Important Examples: Political speeches, central banker speeches, terrorist attacks
How often: Sporadic

An example may be the US president stepping up to the microphone at a campaign rally for an off-the-cuff announcement of an economic stimulus package. This has the potential to send the US Dollar soaring as fiscal policy affects demand.

Another more sober example, is a terrorist attack. If a bomb goes off in a busy underground station, panic soon spreads to markets as traders price in the probability of economic slowdowns and the uncertainty of war.

How to Trade High Impact Forex News

Did you notice that the most important Forex news releases throughout our list, are all from the US?

While global Forex markets are interconnected, the US economy is still the largest economy and as a result, has the most important economic events.
Just remember when developing news trading strategies, that markets are most volatile when expectations don’t align with the actual release.