Forex news can be about the following: Economic indicators, monetary policy decisions, comments from financial leaders, elections, interventions, referendums, war etc…all these can cause an effect resulting in either a strong or weak dollar.
Economic indicators measure the strength or weakness of the economy. Prior to a news release the actual numbers will be compared with the previous numbers to see if there was an expansion or detraction in the indicators. Economists will forecast their projections based on their research and statistics and try to predict these indicators. When the forecasted number is compared to the previous number the market can either buy the rumor or sell the fact later. If the actual number being released is better than expected buying pressures immediately will fuel the market. If the number released is worse than the expected the market will have less buying pressures or profit taking.
Monetary policy meetings are decisions made by either raising, cutting or keeping interest rates neutral. Each country will have it’s own policy decision based on the countries economy. The country will either be in an inflationary or deflationary market pressure. Raising rates (Hawkish) during an inflationary period is a negative sentiment to slow down spending. In this case the market can anticipate these comments and can buy the rumor and sell the fact later.
Comments from central bank heads or financial leaders can be either neutral or positive. This also can be a leading indicator for interest rate decisions. If their comments come out and are interpreted negatively, then you could see short covering or liquidation.
Presidential or prime minister elections can push the parties view to either have a strong or weak dollar. Countries can be an exporting, commodity, or surplus nation and this will dictate for a weaker or stronger currency.
Interventions are normally used to strengthen or weaken a currency. For example, Japan is an exporting nation that would rather have a weaker currency, which is good for their exports to make them more competitive.
Referendums are a popular vote. Some countries would vote on key government issues which can also be a leading indicator by buying the rumor and selling the fact.
Wars will depend on who will be the safe haven. Normally the U.S. dollar is the safe haven currency to go into. In the past USD/CHF have been the safe haven since they are a neutral country.
In conclusion, anticipating the news and having an understanding of why you would want to buy or sell against the dollar will give you the edge in trading long term. Forex market news can be a strategy on trading the news.
© 2010 EMCFX