Forex News or Economic News Events are  economic indicators issued by various governmental or private agencies with proprietary data source, such as large banks or payroll services (ADP).  These currency news events are generally released on a set schedule, such as monthly or quarterly at a certain day of the month or so.  They are different from Equity Market news where companies issue their earning’s reports or future projections.  Currency News releases affect an entire aspect of the market and by learning to interpret the news before and after, a Forex Trader could benefit from the proverbial “heads up” of market direction.

Why do we need to understand Forex News?  Because by learning how to interpret them and apply to our trading, we’ll be on the right side of the market, and if we don’t learn Forex news, we could get caught on the wrong side of the market, and that is not a good thing.

Forex News Demystified 

We can generally classify Forex news into 3 major categories, and based on the market condition at the time, investors may play favoritism with one area of the news and ignore others.  This is completely normal as the market is constantly in a cycle, very much like the fashion industry. So whatever Forex news that is out of fashion today may become the focus of all investors six month later, therefore it is crucial that we learn about all of them.

The first category for Forex News is News on Inflation.  Any economic news release that could potentially affect the inflation such as the CPI, PPI Input, or the actual Interest Rate decision are example for news on inflation.  This news category is probably the most important category that influences currency trading direction.

The second category for Forex News is News on Economy.  Economic news events that talk about the health of the economy, whether they be in the Housing sector, Job’s Market, Retail Sector, Manufacturing, Services, etc… any news that potentially measures the economy.  The most prominent Forex news releases in this category are: GDP, Employment rate (NFP in the US), Existing/New Home Sales (US), Retail Sales, Unemployment Rate, and various PMIs (Purchasing Manager’s Index).  Obviously some of them have higher impact than others, but one should pay attention on what is “hot or not” based on market sentiment.  The Home Sales is one of the example as investors are fixated on U.S. economic recovery, and real recovery will come only after housing recovers.  So the Home Sales data have exaggerated effect on USD during their releases.  Same thing applies to the NFP with recent Bernanke’s speech on real recovery only comes after Job’s market recovery.  So anything that shows even a slight improvement in the Job’s market gets taken out of proportion.

The third category for Forex News is News on Infrastructure. News that give clear indication of the infrastructure of the economy, such as the TIC Net Long-Term data, the Trade Balances, Beige Book, etc… These news events have been ignored for the past 2 years or so as the entire market was concentrating on interest rate, inflation, deflation, and so on; but mark my words, these news events will soon be back in style, more than ever!

I hope now you understand a little more on Forex News than before.  If you turn on TV and watch any financial channels, you’ll see analysts talking about Forex news, and if these news events don’t play a huge part in the financial world, as some Forex Traders who only use technical analysis in their trading would say, then how would companies such as Bloomberg and Reuters make their livings?  They are doing it, everyone that I know is doing it, and you my friend, should start to pay more attention to economic news that drives the currency market, or Forex News.

Henry Liu