Time frame of release of the news.
Figure 1 lists the approximate times (EST) at which the most important economic releases for each of the following countries are published. These are also the times at which you should be paying extra attention to the markets if you plan on trading news releases.
Country | Currency | Time (EST) |
U.S. | USD | 8:30 - 10:00 |
Japan | JPY | 18:50 - 23:30 |
Canada | CAD | 7:00 - 8:30 |
U.K. | GBP | 2:00 - 4:30 |
Italy | EUR | 3:45 - 5:00 |
Germany | EUR | 2:00 - 6:00 |
France | EUR | 2:45 - 4:00 |
Switzerland | CHF | 1:45 - 5:30 |
New Zealand | NZD | 16:45 - 21:00 |
Australia | AUD | 17:30 - 19:30 |
Figure 1: Time relation between different countries.
What Are the Key Releases?
When trading news, you first have to know which releases are actually expected that week. Second, it’s key for you to know which data is important. Generally speaking, these are the most important economic releases for any country:
1. Interest rate decision
2. Retail sales
3. Business sentiment surveys
4. Unemployment
5. Industrial production
6. Inflation (consumer price or producer price)
7. Consumer confidence surveys
8. Trade balance
9. Manufacturing sector surveys
Depending on the current state of the economy, the relative importance of these releases may change. For example, unemployment may be more important this month than trade or interest rate decisions. Therefore, it is important to keep on top of what the market is focusing on at the moment
How Long Does the Effect Last?
According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), the market could still be absorbing or reacting to news releases hours, if not days, after they are released. The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day. The impact on order flow, on the other hand, is still very pronounced on the third day and is still observable on the fourth day.
How Do I Actually Trade News?
The most common way to trade news is to look for a period of consolidation ahead of a big number and to just trade the breakout on the back of the number. This can be done on both a short-term intraday basis and a daily basis. Let's look at the chart in Figure 2 as an example. After a weak number in September, the market was holding its breath ahead of the October number, which was to be released to the public in November. In the 17 hours before the release, the EUR/USD was confined within a tight 30-pip trading range. For news traders, this would have provided a great opportunity to put on a breakout trade, especially since the likelihood of a sharp move at this time was extremely high.
Figure 2: This chart illustrates the indecision of the market leading up to the October non-farm payroll numbers, which were released in early November. Note the increase in volatility that occurred once the worse than expected news was released.
We mentioned earlier that trading news is harder than you might think. Why? The primary reason is volatility. You can be making the right move but end up being stopped out, or the market may simply not have the momentum to sustain the move.
Let's look at the chart in Figure 3 as an example. This chart shows activity after the same release as the one shown in Figure 2, but on a different time frame to show how difficult trading news releases can be. On November 4, 2005, the market had expected 120,000 jobs to be added to the U.S. economy, but instead only 56,000 jobs were added. This sharp disappointment led to an approximately 60-pip sell-off in the dollar against the euro in the first 25 minutes after the release. However, the dollar's upside momentum was so strong that the gains were quickly reversed, and an hour later, the EUR/USD had broken its previous low and actually hit a 1.5-year low against the dollar. Opportunities were plentiful for breakout traders, but bullish momentum in the dollar was so strong that such a bad payrolls number failed to put a sustainable dent in the currency's rally. One thing you should keep in mind is that, on the back of a good number, a strong move should also see a strong extension.
Figure 3: This intraday chart shows that, while the worse-than-expected non-farm payroll numbers sent the EUR/USD rate upward for a short period of time, the strong momentum of the U.S. dollar was able to take control and push the dollar higher. Keep in mind that when the EUR/USD rate falls, the U.S. dollar is going upward, and vice versa.
