Top News to Trade & Why?


Trading the News is great for catching short term volatility.  The news which is most able to move the markets come form the largest economies, in particular The USA and The Euro Zone.  The US dollar is the worlds reserve currency and 90% of forex pairing volume involves the USD, so it stands that US economic data is very important.  In addition to economic data we should also pay attention to geo-political events, like wars, coups, natural disasters and elections, to name but a few.

Stock markets, Forex, bond markets, etc. can be moved too by 'news'.  For instance retail sales releases will break sales down by sector, so if you own a retail stock in the food and beverage sector these break-downs can move the stock or market.

Top Economic News to Trade

Below I've listed some of the best economic releases to trade and what they mean to the trader.
Economic ReleasesUsual EffectWhy Traders Care
Employment releases -  like The US Non Farm Payroll release.  Released MonthlyActual > Forecast = Good for currency and marketsThis is vital economic data measuring jobs add/lost per month. The combination of importance and earliness makes for hefty market impacts. Farming isn't included due to it seasonality. This seasonality distorts the overall trend.

Job creation is an important leading indicator of consumer spending, which accounts for a majority of overall economic activity.
They're usually published monthly, eg NFP's are released at 08:30 EST on the first Friday of each month.

Watch for the break-down of the employment figures.  I.e, NFP's will be broken down to - Employment changes, Unemployment rate, Sector employment changes, Average hourly earnings and there will be revisions from last month's releases. The headline number as well as the break-downs can move markets.
Central Bank Interest Rate announcements & press conferences.Actual > Forecast = Good for currency, but not so good for marketsShort term interest rates are the paramount factor in currency valuation - traders look at most other indicators merely to predict how rates will change in the future.  The press conferences after the rate decisions are probably more important as the highlight future decisions.  

The Carry Trade may benefit here.
Trade Balance ReleasesActual > Forecast = Good for currency and marketsExport demand and currency demand are directly linked because foreigners usually buy the domestic currency to pay for the nation's exports. Export demand also impacts production and prices at domestic manufacturers
CPI - Consumer Price IndexActual > Forecast = Good for currency and stocks.  However large increases are inflationary, so may be detrimental to stocks.Published monthly, consumer prices account for a majority of overall inflation. Inflation is important to currency valuation because rising prices lead the central bank to respond by raising interest rates.

It's a weighted average of prices of a basket of consumer goods and services, such as transportation, food and medical care. The CPI is calculated by taking price changes for each item in the basket and averaging them; the goods are weighted according to their importance. Changes in CPI are used to assess price changes associated with the cost of living. Sometimes referred to as "headline inflation."

As stated it's broken down into sectors, so can be beneficial for stocks held in certain sectors.
Retail SalesActual > Forecast = Good for currency & stock markets*Released monthly, retail sales are the primary gauge of consumer spending, which accounts for the majority of overall economic activity.  It measures the sales of good by all retail establishments in the economy.

This release will be broken down by sector, i.e. Food & Beverage, Health, Clothing, etc, so may move stock markets, individual shares etc.  

Excessive retail sales growth can cause inflation, causing central banks to increase interest rates to reign in growth.  *Higher interest rates are bullish for currencies, but not so for stock markets. 
GDP    Actual > Forecast = Good for currency and stock marketsIt's the broadest measure of economic activity and the primary gauge of the economy's health.

The monetary value of all the finished goods and services produced within a country - usually calculated on an annual basis, with quarterly updates

It includes all of private and public consumption, government outlays, investments and exports less imports that occur within a defined territory.

GDP = Consumer Spend + Government Spend + Investment (business) Spend + (Exports - Imports)
Manufacturing Index (ISM index in The USA)Actual > Forecast = Good for currency and stock markets.Published monthly, this is a leading indicator of economic health - production reacts quickly to ups and downs in the business cycle and is correlated with consumer conditions such as employment levels and earnings.

This index is a 'soft' measure of the economic outlook as it is a survey of manufacturing execs.  The measure is based around 50, where above 50 means expansion and below 50 contraction.  Releases which beat estimates rally markets and vice-versa.
PPI (Producer Price Index)Actual > Forecast = Good for currency and stock markets. However large increases may be inflationary, so may be detrimental to stocks.  . Reported Monthly, it reports the increase or decrease in prices to producers for their output.  Increases in PPI usually mean the finished goods prices.  

Large increases may be inflationary, raising the probability of consumer price increases (CPI).  This increases the probability of an interest rate hike to slow the economy, which is good for currencies, but not so much for markets.  Steady,controlled gains however, will benefit stock markets and not all PPI increases are passed on through CPI.
Real Estate releases such as Existing Home Sales Index    Actual > Forecast = Good for home building companies and markets as a whole.  Good for currencies. A bubble situation may be bearish for stock markets.This is a monthly report measuring monthly home sales, median selling price and Supply.  

This is a leading indicator, which highlights future economic activity.  More home sales lead to increased economic wealth by consumers as increased equity in homes can be released or borrowed against and spent.

Major sustained moves will more than likely be coupled with inflation.  Central Banks will increase interest rates to try to slow down and 'bubble' that may be forming.  This is good for the currency of the economy, but may slow market growth. 
Consumer Confidence Index (CCI)Actual > Forecast = Good for markets.  Good for currencies. This is a monthly report on a survey of households to gauge financial health, spending power and confidence of the consumer.  This is another 'soft' indicator, but incredibly useful.  However, it can be easily swayed by short term spikes in fuel prices etc...

A high score indicates optimism and increased consumer spending in the future and vice-versa.  It does have a degree of volatility, so it's best to look at if with a 3 month moving average.
Index of Leading Economic IndicatorsActual > Forecast = Good for markets.  Good for currencies. This is a monthly published index that is made up of a bundle other leading indicators like average working hours, house building, new manufacturing orders, consumer sentiment, defence capital orders etc..  We won't go into them here, but overall it indicates how the economy will fair in the future.
Note. These are some of the main ones, but there are others. colour codes economic releases by importance to trading.

Which Currency Pairs are best to Trade the News

Because news increases volatility it's best to trade the most liquid pairings.  The most liquid pairing all include The USD.  They are:


The above parings also have the tightest spreads, so reducing your trading costs.

To Sum Up

We've highlighted the top 10 or 11 economic releases to trade in the chart above.  There are other however and as always you should do your own research on how economic news moves your market.  Markets move differently depending on the economic environment you find yourself in and they'll move differently depending on other countries reports.  There's usually inter-market correlation that needs to be factored in.  Do your homework, stay abreast of all releases from all over the world and work through the meaning methodically.  It's a good idea to study how releases move markets for a couple of month prior to trading.

Technical analysis is not an exact science and although these ideas can increase the probability of making the correct trade, many will go against you and large losses can be incurred. Your own trading strategy needs to be formed and hopefully you'll be on your way to achieving this on completion of this course. <<<<<<< HEAD