How major news releases impact the forex market

[gramanno]

Usually, the hours before the scheduled release of important news releases are often characterized by low volatility. You would notice that a usually active currency pair suddenly looks dead and could even go into consolidation. This is because few traders are making trades at that moment, as most traders anticipate the results of the release until they are sure about the direction the news would drive the price. They don’t want to make trades and find their stop losses knocked out when the news drives the market against them.

Another impact of the important news releases on the forex market is that brokers widen their spreads. In other words, the risks expand for traders who are looking to trade the news.
Not all news releases are important enough to affect currency pairs in forex. Some important news releases don’t even affect the currency pairs they should affect sometimes, especially when most traders already have a good guess of the result of the news. There is a seesaw effect to this, however, as surprising news releases could cause more than normal volatility. Despite this unpredictability, it is smart to anticipate and prepare for an upcoming important news release
So, how do you know the important news releases to trade in forex?

 

[FlaviusX]

Hello,

I also noticed that there is low volume if there is going to be news on that pair. I personally avoid trading when there is news, I don't want to expose myself to that volatility.

 

[Charles Agustin]

Fundamental events have high impact on the market so keep your eyes on the news hitting the market on a regular basis. Exchange rate is changing as currencies are changing hands on a regular basis. And we are trading based on this exchange rate.

 

[adil149]

Here are some key ways in which major news releases can impact the forex market:

1. Volatility: Major news releases, such as central bank announcements, economic indicators (e.g., GDP, employment data), and geopolitical events, can cause significant volatility in the forex market. Market participants react to new information, leading to sudden and rapid price movements in currency pairs. This can result in increased trading activity, higher trading volumes, and wider bid-ask spreads.
2. Market Sentiment: News releases can influence market sentiment, which in turn affects currency prices. Positive news, such as strong economic data or optimistic statements from central banks or government officials, can boost market confidence and lead to increased demand for the respective currency. Conversely, negative news, such as weak economic data or geopolitical tensions, can lead to a deterioration in market sentiment and result in decreased demand for the respective currency.
3. Monetary Policy Expectations: Central bank announcements, particularly related to interest rates and monetary policy decisions, can have a significant impact on forex markets. Changes in interest rates or hints of future policy direction can affect expectations about the future economic and financial environment, which in turn influence currency prices. Traders and investors closely monitor central bank communications and adjust their trading strategies accordingly.
4. Risk Appetite/Risk Aversion: Major news releases can also impact overall market sentiment towards risk. For example, during times of heightened geopolitical tensions or economic uncertainty, market participants may exhibit increased risk aversion, seeking safe-haven currencies such as the U.S. dollar, Japanese yen, or Swiss franc. Conversely, during periods of positive news or economic optimism, market participants may exhibit increased risk appetite, leading to demand for higher-yielding currencies.
5. Trading Opportunities: Major news releases can create trading opportunities for traders who specialize in news-based strategies. Traders may use techniques such as news trading, where they take positions based on the immediate market reaction to news releases, or volatility trading, where they capitalize on the increased volatility during news events.

It's important to note that trading around news releases can be highly risky due to the potential for rapid price movements and increased volatility. It's crucial to have a solid understanding of the risks involved and use proper risk management techniques, such as setting stop loss orders, when trading around news events.

 

[John Miller]

Forex is a financial market where major news release affect the market highly. So try to trade with a regulated and technologically-advanced broker.