In this age where information can be a very powerful and strategic asset, whether for individuals or companies, and information equals money, especially for a trader, isolating yourself from the news can be suicidal. The forex market is very sensitive to the influx of news related to it and the short-term movements of the major currencies are always preceded by changes in the fundamental opinions that are affected by the news. Traders around the world make a living by processing information and translating it into money. Financial news service providers know how important news is to players in the forex market, and they charge a premium for that. It is not uncommon to get hundreds of potentially forex trading related news headlines from any news service provider in a typical trading day.
Traders, especially those who trade the forex market daily, need the latest news updates to make it easier for them to make their trading decisions at lightning speed. They mostly make use of online financial news services such as Dow Jones Newswires, Bloomberg, and Reuters, which display the latest financial news on their computer screens. Since the speed of news dissemination is very important to traders, many choose these online instant news services instead of relying on daily newspapers such as the Wall Street Journal or the Financial Times that carry outdated news that is of no use to traders.
The main reason why news is important for forex trading is that each new piece of information can change a trader’s perceptions of the current and/or future situation regarding the outlook for certain currency pairs. When people’s opinions or beliefs change, they tend to act on these changed perceptions through their buying or selling actions in the forex market. Based on the news, these traders will prepare to cover their existing positions or initiate new positions. The trader’s action is based on the expectation that there will be price following when other traders see the same news and interpret it in a similar way to him or her, and adopt the same directional bias as the trader as a result.
News is a very important catalyst for price movements in the short term because of the expected effect it will have on other players in the market, and this is in a way a proactive reaction on the part of the trader because he assumes that other traders will be affected by the news as well.
If the news is bullish, for example for the US dollar, traders who react faster will be among the first to buy the US dollar, soon followed by other traders who may react slower to the news or wait for certain technical parameters that must be met before jumping on the bandwagon. . There will be those who join the buying frenzy at a later stage when they get the late news in the morning paper or from their brokers. This gradual entry of the US dollar bulls over a period of time is what maintains the upward movement of the US dollar against another currency, as the exchange rate of the US dollar rises against other currencies. The opposite is true for bearish news, as traders will sell because they know others will sell soon, thus pushing the dollar’s exchange rate down. This is based on the assumption that since other traders will receive the same news, they will also be affected in the same way.
News that is released publicly is disseminated to various news agencies. Any trader with access to these wires can benefit from the information provided, and react accordingly in the forex market. However, institutional players get information that retailers don’t, as they get special access to order book information in their computer systems, and they may also know something that others don’t through personal contacts in the industry.
In the world of forex trading, there are no rules or restrictions against insider trading! Anyone who possesses information that only a select few know can trade that information in the forex market. Sometimes such news may give an unfair advantage to these institutional players, but at other times such isolated news access may not translate into real market action if other players do not have this information.
Think of it this way: the forex market depends on the news, because in the absence of news, there will be little or no price movements in the market. Even if currencies may move according to technicals at times, the technical elements are pre-established by news or future news predictions, so the impact of news on currency prices is inevitable and unavoidable.