Forex News Trading

Traders on the Foreign Exchange market, Forex market for short, can potentially make thousands of dollars based on the volatility and fluctuations of a country’s currency. To better themselves and have a leading advantage over other traders, some Forex traders and investors participate in a practice known as news trading. The risks are very high, but the potential gains can be worth thousands of dollars and many traders and investors use this technique.

The technique of news trading is quite simple. It is the trading of foreign currency immediately before or after an important economic news announcement. After such announcements, there is a high possibility that market prices will fluctuate, either for the better or worse, depending on the announcement. For example, if the U. S. Federal Reserve announces another increase of the interest rate, many traders might invest in the U.S. dollar as it is expected that its value will appreciate. The main advantage of news trading is the potential for a country’s currency to make huge gains or losses in very little time. Within minutes of an economic announcement, a country’s currency can gain or lose one hundred points almost instantly. The potential of huge profits attracts Foreign Exchange traders and investors, however there are various risks associated with news trading.

Like any investment, there is always a risk, and news trading on the Forex market is no different. Though the potential profits are huge, the losses are also equally as large. The dangers of news trading come from the fact that a trade must be made quickly or else you are going to lose. If you are caught on the bad side of a trade, your money will be gone quicker than you can blink your eye. You will lose money so fast that there won’t even be time for you to manually close your trades, leaving you with nothing. Stop-loss orders are also potentially dangerous as there is a high probability of slippage because of the sudden price fluctuation.

Though some investors and traders might get lucky trading news, there is only a small probability that you will make a profit. Even if you are an expert news trader, you should still be very, very cautious when participating in this practice. Successful news trading depends solely on how you get your news. The most successful news traders are the ones with the fastest news feeds and those that are able to quickly place their trades immediately after an announcement has been made. Even using other forms of news trading, such as placing orders above or below the market price is still a guessing game, and those traders in the market who base their trades on guesses, won’t have much money after a short time.

For many Forex traders and investors, their trades are dictated by technical indicators and price indexes. Hours are spent researching every indicator, taking every risk into account and then making a decision based on everything they have studied. However, for a Forex news trader, none of this matter, and the only thing they take into account is economical news announcements.

News trading is possible because the Forex market is always open, unlike many financial markets. In a financial market, securities trades of certain stocks are suspended when an important company announcement is being made. These announcements are usually made after the market has closed for the day. However, because the Foreign Exchange market is open 24 hours, any economic announcement will have direct affects on the currency of that country, and maybe others as well. In the Forex market, there are eight major currencies that are traded, as well as over seventeen derivatives to be traded as well. This means that on any given day, there will always be economic announcements from any of the major traded currencies. The major trader currencies are as follows:

1. U.S. Dollar (USD)
2. Great British Pound (GBP)
3. Euro (EUR)
4. Japanese Yen (JPY)
5. Australian Dollar (AUD)
6. Swiss Franc (CHF)
7. Canadian Dollar (CAD)
8. New Zealand Dollar (NZD)

Because of the availability of each currency, currency pairs, and its derivatives, such as USD/JPY, EUR/USD, AUD/USD, as well as several others, each currency can be traded at any given time because these currencies are globally traded.

Any Forex news trader or news investor will have to have the latest most up to the moment news announcements. Even if the news announcements are only a couple of minutes old, this can have devastating effects for any trader who has risked any sum of money. Most news traders like to keep an eagle eye on any news regarding economical activity, but most importantly news dealing with interest rates changes, FOMC rate decisions, retail sales figures, inflation indicators such as the consumer price index (CPI), producer price index (PPI), unemployment figures, industrial production announcements, boost in business and consumer confidence, as well as business sentiment surveys. Manufacturing sector surveys, trade balance release details, and foreign purchases of U.S. Treasuries may also prove useful for a news trader to better make decisions regarding when or when not to trade.

However, it should be remembered that these news announcements can have ranging impacts on a country’s currency, and after an announcement, the volatility of a currency may greatly fluctuate. It is important to take advantage of news that creates movements in volatility that will last for a few minutes or even hours. Trading on the Forex market based solely on news is a difficult and sometimes dangerous practice. However, there are some indicators that can make a news trader’s job easier, such as breakout indicators (Bollinger bands, breakout of a candlestick bar, or a price bar). Research has proved that news announcements can impact a currency’s value quite severely, in some cases it can gain or lose anywhere from 33 pips to 124 pips, opening up the ideal trading opportunity looked for by news traders. If a news trader is able to act quickly enough, even the smallest news release can be turned into a potential profit of thousands of dollars. However, it is important to remember the volatility of such announcements, and although the profits seem endless, the losses can happen too.

The global financial markets are interconnected and depend greatly on the financial and macroeconomic statistics. The Forex market is not an excepti

Getting the latest important news is a vital requirement for every Forex, stocks or options trader. The Internet is full of various sites, but not all them feature financial news or provide such news in a timely manner. This list consists of top ten sources for the trader’s news that are updated often and are not mixed up with irrelevant news.

1. Bloomberg — the ultimate news source about everything that is in any way related to the financial markets. Categorization by the regions helps in finding important international news.
2. Forbes.com Breaking News — a great site to get the recent financial information, it also provides free news from several paid news sources (i.e. Associated Press). Stock market traders will like the coverage of almost all kinds of companies.
3. Reuters Business & Finance — Reuters is one of the most professional informational companies in the world and they offer news as a free service to everyone.
4. BusinessWeek — they may be too old-fashioned, but BusinessWeek still features some exclusive news content and the very professional analysis.
5. Financial Times — I like FT for they are not as US-centered as some other financial news sites, they offer a pretty good world news outlook. Can be recommended as a source of Forex related news if you prefer trading exotic currency pairs.
6. CNNMoney — opposite to FT, CNN prefers news from United States, but it’s still good because the majority of world stocks are concentrated on the Wall Street. It will also be useful to the Forex dollar traders.
7. CNBC — a "must have" bookmark for every currency trader; news on foreign currency markets are delivered at the top quality level.

How News Affect Forex?

The global financial markets are interconnected and depend greatly on the financial and macroeconomic statistics. The Forex market is not an exception. Currency rates — the basic instruments of the foreign exchange market — are affected by the by major financial news, fundamental statistical reports and important geopolitical events. But nothing compares to seeing the actual effects of the news on the Forex market. Here you will find three major examples of such influence.

Monetary Actions

Such news as monetary policy decisions by the major central banks have an immediate impact on the currency pairs. If the interest rate is changed too fast or too slow, or an unexpected comment is made about the future interest rate changes, the currency pairs rally or fall with a speed of light. When the Federal Open Market Committee (FOMC) of the U.S. Federal Reserve announced its first rate cut from 5.25% to 4.75% on September 18th, 2007, after a long series of the rate hikes, it pushed EUR/USD up. On the EUR/USD hourly chart below you can see a jump in the rate as the dollar lost a part of its attractiveness with the lower interest rate and the euro advanced. The reaction has been instant and a strong bullish trend has followed afterwards:

Macroeconomic Releases

Another important type of Forex news that has a strong and immediate impact on the currency rates is the macroeconomic releases and reports. One of the most noticeable effect belongs to the U.S. quarterly GDP data releases. If the reported quarterly change differs from the expected value or is simply significantly above/below the previous quarter, currency market react with unpredictable fluctuations. When the Bureau of Economic Analysis (U.S. Department of Commerce) released its advance GDP report for Q2 2008 on July 31st, 2008, a sharp spike appeared on all dollar-related pairs. The reported change was +1.9%, which was below the expected +2.3% value. The presented chart shows EUR/USD hourly price movement with a strong spike-like candle exactly after the GDP report has been published:

Geopolitical Events

Some global geopolitical events have a considerable influence on the Forex market. Wars, political scandals, elections, peace treaties, nuclear bomb tests and terrorist attacks usually result in a lot of consequences and expectations regarding those consequences. And the currency rates respond to such events with the fluctuations that end up in termination of the old trends and setting up of the new long-term trends. September 11th attacks upon the United States was a major global event that was followed by unprecedented geopolitical consequences — war in Afghanistan and Iraq, higher spending on U.S. war budget and a higher U.S. fiscal debt. It can be seen on the EUR/USD monthly chart below that the September was one of the pivotal points in trend reversal from a bearish one to a bullish one. The dollar has been falling since then:

As you see, the impact of the news on the Forex market can’t be ignored. Whether you trade intraday or long-term, your currency positions will be affected by the Forex news. That’s why it’s important for the currency traders to monitor all the related news and make the market decisions in relation to them.

Tighter Bank Lending Standards Reinforce Fed Decision on Rates

The Federal Reserve said U.S. banks kept tightening lending standards for companies and consumers last quarter, reinforcing the central bank’s decision to leave its benchmark interest rates at record lows for a long time.

At the same time, the number of banks making it tougher to borrow diminished, the Fed said yesterday in its quarterly Senior Loan Officer survey. Demand for most types of loans weakened at a smaller number of banks than in the second quarter, the survey showed.

The report helps explain why Fed policy makers last week said “tight credit” remains a drag on the economy and pledged to keep their benchmark interest rate near zero for an “extended period.” JPMorgan Chase & Co. is among the banks that have reduced lending in response to stricter underwriting standards for consumer loans and lower demand among companies.

“The fact that banks are still tightening standards is just another reason why the Fed is not going to be raising rates anytime soon,” said Dean Maki, chief U.S. economist at Barclays Capital Inc. in New York, who predicts the Fed won’t tighten until September.

While the Fed isn’t about to raise rates, with fewer banks making it tougher to borrow, “credit may be less of a headwind to growth in coming quarters than is commonly believed,” said Maki, a former Fed economist. The percentage of banks tightening standards was “quite similar” to the end of the last recession, in 2001, he said.

Separately, the Fed said yesterday that nine of 10 bank holding companies deemed short of capital in May have raised their reserves enough to withstand the risk of higher unemployment and slower economic growth.

Talks With Treasury

The one exception, GMAC Inc., “is expected to meet its remaining buffer need by accessing” one of several government programs to help the auto industry, the Fed said. GMAC is “in discussions with the U.S. Treasury on the structure of its investment,” it said.

The survey of loan officers at 57 U.S. banks and 23 U.S. branches of foreign banks was conducted from about Oct. 6 to Oct. 20, the central bank said. The report doesn’t identify respondents.

Loans and leases held by U.S. commercial banks have declined for 10 straight months, falling to $6.7 trillion as of Oct. 28 from $7.2 trillion at the end of 2008, according to a separate statistical release from the Fed.

Commercial and industrial loans have dropped to $1.37 trillion from $1.6 trillion, commercial real-estate loans have declined to $1.66 trillion from $1.72 trillion, and consumer loans have fallen to $847 billion from $857 billion at the end of last year.

Commercial Loans

In response to a special question on the decline in commercial and industrial loans, banks cited lower originations of loans and decreased draws on revolving credit lines as the two most important reasons for the drop.

About a net 15 percent of banks tightened standards on commercial and industrial loans, half of the prior survey and below the peak of about 80 percent a year ago, the Fed said. Also, about a net 15 percent of respondents said they tightened standards for credit-card loans, the smallest since April 2008 and down from 35 percent in the July survey.

Banks were extending commercial real estate loans more often than refinancing them, the survey showed. About 75 percent reported extending more than one-fourth of construction and land development loans scheduled to mature by September.

The Standard & Poor’s 500 Index advanced 2.2 percent to 1,093.08 at 4:05 p.m. in New York for its sixth straight gain. Financial companies gained the most of 10 industry groups in the S&P 500, adding 3.6 percent collectively.

‘Work Constructively’

Last month, the Fed and other regulators urged commercial real estate lenders to “work constructively” to arrange modifications with borrowers who show a willingness to repay debt.

Loan originations by the biggest U.S. banks receiving government assistance fell by 17 percent in August from a month earlier, the Treasury Department said Oct. 15.

In its monthly survey of lending by the top 22 recipients of capital injections from the $700 billion Troubled Asset Relief Program, the Treasury also said total loan balances fell by 1 percent in August from a month earlier.

Loans at New York-based JPMorgan fell to $653.1 billion at the end of the third quarter from $761.4 billion a year earlier. The decline reflected “some tightening of underwriting standards” on consumer loans, including credit cards, Chief Financial Officer Michael Cavanagh told analysts during an Oct. 14 call following the release of the quarter’s results. Loan demand from companies also fell, he added.

Bank of America Corp.’s loans and mortgages shrank to $878.4 billion from $922.3 billion a year earlier. The drop was due to “lower consumer spending and a resurgence in the capital markets” that allowed corporations to issue bonds and equity to pay off debt, Kenneth Lewis, chief executive officer of the Charlotte, North Carolina-based bank, said on an Oct. 16 conference call with analysts after the third-quarter report.

Daily Report: Markets Cautiously in Range ahead of Non-Farm Payroll

Markets are cautiously in range ahead of non-farm payroll report from US today. Economists expect the US job markets to contract by -165k in October, much better than September's -263k. Unemployment rate is expected to climb slightly from 9.8% to 9.9%. The leading indicators to NFP are mixed. Improvements were seen in October ADP but the -203k figure fell short of expectation of -187k. Strong improvement was seen in the employment component of ISM manufacturing index rose remarkably to 53.1 in October, first expansionary reading since August 2008. But the employment component of ISM non-manufacturing index unexpectedly dropped to 41.1. After all, improvements in the job numbers are still expected to be seen in today's NFP. The bigger uncertainty is possibly in the unemployment rate and disappointment there might drive wild reactions in the financial markets. Other data featured today include Swiss unemployment rate, UK PPI, German factory orders, Canadian employment report and US wholesale inventories.

In the quarterly monetary policy statement, RBA raised projections for other inflation and economic growth. GDP is projected to rise 1.75% this year and 3.25 % in 2010 versus prior projection of 0.5% this year and 2.25% in 2010. Inflation is expected to bottom out at 2.25% by end of 2010, compared with prior forecast of 2.0%, and then stay in the target range of 2-3% through June 2012. The statement maintains recent hawkish tone from RBA and said that "the cash rate remains at a low level and a further gradual lessening of monetary stimulus is likely to be required over time." Aussie has been strong against New Zealand dollar recently. It's possible that sideway consolidation from 1.2928 in AUD/NZD has completed at 1.1925 already and we're looking at a test of 1.2928/66 resistance in near term.

Looking at the dollar index, intraday bias remains mildly on the downside with 75.98 minor resistance intact and further fall cannot be ruled out. Nevertheless, note that we'd still prefer the case that dollar index has bottomed out at 74.94 already. Downside of the current pull back should be contained well above 74.94 low. Above 75.98 will flip intraday bias back to the upside first.

AUD/USD Daily Outlook

Daily Pivots: (S1) 0.9041; (P) 0.9083; (R1) 0.9141; More

Intraday bias in AUD/USD remains neutral for the moment and recovery from 0.8915 might extend further. But after all, note that with 0.9180 resistance intact, fall from 0.9326 is still expected to continue. Below 0.9022 minor support will flip intraday bias back to the downside first. Further break of 0.8915 will bring fall resumption to 0.8567 support next. However, decisive break of 0.9180 resistance will suggest that fall from 0.9326 has completed and will turn focus back to this high.

In the bigger picture, considering bearish divergence conditions in daily MACD, medium term rise from 0.6284 might have topped out at 0.9326 already. Focus now turns to channel support (now at 0.8952). Sustained break there will confirm this case. In such case, deeper pull back should be seen to 0.8154 cluster support (38.2% retracement of 0.6284 to 0.9326 at 0.8164). Nevertheless, downside should be contained above 0.7702 support and bring rebound. On the upside, above 0.9326 will invalidate this view and indicate that medium term rally is still in progress for 0.9849 high.

Economic Indicators Update

GMT	Ccy	Events	Actual	Consensus	Previous	Revised
0:30	AUD	RBA Quarterly Monetary Policy Statement		--	--
5:00	JPY	Leading Index Sep P	86.40%	86.40%	83.30%	83.20%
6:45	CHF	Unemployment Rate Oct	4.10%	4.20%	4.10%
9:30	GBP	PPI Input M/M Oct		1.60%	-0.50%
9:30	GBP	PPI Input Y/Y Oct		-1.30%	-6.50%
9:30	GBP	PPI Output M/M Oct		0.40%	0.50%
9:30	GBP	PPI Output Y/Y Oct		1.70%	0.40%
9:30	GBP	PPI Output Core Y/Y Oct		2.00%	1.40%
11:00	EUR	German Factory Orders M/M Sep		0.80%	1.40%
11:00	EUR	German Factory Orders Y/Y Sep		-13.90%	-20.40%
12:00	CAD	Net Change in Employment Oct		10.3K	30.6K
12:00	CAD	Unemployment Rate Oct		8.40%	8.40%
13:30	USD	Change in Non-Farm Payrolls Oct		-165K	-263K
13:30	USD	Unemployment Rate Oct		9.90%	9.80%
15:00	USD	Wholesale Inventories Sep		-1.00%	-1.30%

Forex Technical Analytics

The pre-planned short positions from key resistance range levels were implemented with the achievement of main estimated targets. OsMA trend indicator, having marked the tendency of bearish activity strengthening and gives grounds to suppose preservation of sales priorities for planning of trading operations for today. On the assumption of it, we can assume probability of rate return to close 1,0140/60 resistance levels where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for sales on condition of the formation of topping signals the targets will be 1,0080/1,0100 and (or) further break-out variant up to 1,0020/40, 0,9960/80. The alternative for buyers will be above 1,0240 with the targets of 1,0280/1,0300, 1,0340/60, 1,0400/40.

GBP

The pre-planned long positions from key supports were implemented with the achievement of main estimated targets. OsMA trend indicator, having marked the tendency of bullish activity strengthening and gives grounds to suppose buyers positions planning priorities. On the assumption of it we can assume probability of rate return to close 1,6640/60 supports where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of formation of topping signals the targets will be 1,6700/20, 1,6760/1,6800 and (or) further break-out variant up to 1,6860/80, 1,6940/60, 1,7000/20. The alternative for sales will be below 1,6560 with the targets of 1,6500/20, 1,6440/60.

JPY

Short positions, opened and preserved before had positive result of the achievement of main estimated targets. OsMA trend indicator, having marked further bearish activity strengthening gives grounds to maintain sales priorities for planning of trading operations for today. On the assumption of it, we can assume probability of another test of Senku Span B line of Ichimoku indicator at 90,20/40 levels, where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for sales, on condition of the formation of topping signals the targets will be 89,60/80, 89,00/20 and (or) further break-out variant up to 88,40/60, 87,80/88,00. The alternative for buyers will be above 90,80 with the targets of 91,20/40, 91,80/92,00 .

EUR

The pre-planned long positions from key supports were implemented with the achievement of main estimated targets. OsMA trend indicator having marked preservation of the tendency of strengthening of bullish party activity and gives grounds to keep the priority of buying positions planning for today. On the assumption of it, as well as of current signs of some rate overbought we can suppose probability of rate return to close 1,4880/1,4900 supports where it is recommended to evaluate the development of the activity of both parties in accordance with the charts of shorter time interval. As for short-term buying positions on condition of the formation of topping signals the targets will be 1,4940/60 and (or) further break-out variant up to 1,5000/20, 1,5060/1,5100. The alternative for sales will be below 1,4840 with the targets of 1,4760/80, 1,4700/20.

Risk Bubble Back into Inflation Mode - as Market Declares "Long Live Liquidity!"

The logic of liquidity

The perverse bubble-inflating logic of the market continues as a new week begins. Last Friday's ugly US (un)employment report only served to embolden the risk bulls, who see the Fed on hold indefinitely and only helping to feed the liquidity and USD carry trade inflating risk bubble. After Friday's data, US 2-year rates, at a pathetic 85 basis points, have now fallen within a couple of basis points of their lows since this spring when the equity market was bottoming. Shortly put: Down with Logic, Long Live Liquidity! The worst thing for risk investors in this bizarre environment would be real signs of an economic recovery in the US, one that would put the real threat of a more hawkish Bernanke on the radar screen. As long as this eventuality fails to materialize, it appears this bubble will only pop under its own weight, or due to some black-swanish exogenous shock.

The market psychology here reminds this analyst of another frustrated analyst's morning daily report read several years ago, when the market's moves were especially defiant of economic common sense. The title of the report was "FX Trading in Bizarro World". For those unfamiliar with the term Bizarro World, it was a parallel, alternate universe created by the Superman comic book writers that allowed them to indulge in the creation of upside down logic and alternate realities on the planet Htrae (a cube shaped planet and Earth, spelled backwards). According to Wikipedia, Bizarro World is "used to describe anything that uses twisted logic or that is the opposite of something else." Right now, folks, we are living and breathing and trading currencies on the planet Htrae.

Bloomberg points out that the big three Wall Street banks (Goldman, JPMorgan, MorganStanley) are set to distribute almost $30 billion in bonuses this year, a new record, even beating the banner year of 2007, as the Fed's liquidity spree has reinvigorated asset markets. One can only wonder if this development will escape popular outrage in the US, where the underemployment gauge (the so-called U6) jumped to a new record high of 17.5% in October. Many would-be workers in the US must feel that they are living in Bizzaro world as well.

Lines in the sand redrawn?

The moves on Friday and into today cross some important lines in the sand and look to have delivered the deathblow for the hopes of a USD turnaround to the strong side for the shortest term. We mentioned EURUSD retracement levels that were still intact on Friday, but these were blown through this morning. Weekly AUDUSD momentum also was an area we focused on recently, but last week's strong close will need to see a strong reversal and lower close this week for that view to stay on track. One indicator that doesn't sit well with today's moves, however, is the level in the emerging market equities, which lag this latest dollar move to the downside. Over the past few months, these markets have followed one another in lock step, as EM is the favorite destination of USD funding, so this divergence is noteworthy. The market may have a hard time keeping weak USD momentum going if we see more strength in EM equities.

In other developments, the JPY crosses have started the weak with a fairly strong move to the upside, a move that doesn't look justified by the move in interest rates

Looking ahead: key data this week

This week is about as about as sparsely populated with interesting economic data as last week's was packed with key event risks. Here we include highlights only.

• Tuesday: Norway Oct. CPI, UK Sep. Trade Balance, Germany Nov. ZEW
• Wednesday: China Oct. Retail Sales, Inflation, and Industrial Production data, UK Quarterly Inflation Report
• Thursday: New Zealand Sep. Retail Sales, Australia Oct. Employment, US Weekly Initial Jobless Claims
• Friday: Germany Q3 GDP, US Sep. Trade Balance, Canada International Merchandise Trade, US Nov. Preliminary University of Michigan Confidence

Of all these data points, the three most important for apparent likelihood of causing significant moves in the country's currency we would list the UK Quarterly Inflation report on Wednesday, Australia's Employment Report, and the Norway CPI data up tomorrow.

Chart: EURGBP

EURGBP trying to make a new foray to the downside today, but will likely need a good look at Wednesday's Quarterly Inflation Report before any decisive move can be made. NOte the approaching 200-day moving average to the downside.

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