Forex News Trading 101: Secrets of the Market Movers

Financial news can greatly move forex markets. Forex news trading 101 can pave the way to unravel what moves the market.

The value of a currency is like your reputation – it depends on how well things are going. Strong economic data suggests a healthy and growing country. It makes its currency more attractive.

By understanding key financial data and reports, let’s anticipate how they might impact on a currency’s value and position yourself for potential gains.

Read on and the below are some of the specific ones:

Retail Sales Figures:

Think of it this way – If everyone in a country is on a shopping spree, it suggests people have money to spend and feel confident about the economy. This is exactly what retail sales figures track – the total amount of goods purchased by consumers.

According to a Reuters poll as of April 2024, economists had predicted a 0.4% increase in retail sales. It measures mostly goods purchases unadjusted for inflation. Retail sales actually rose 3.0% on a year-over-year basis in April 2024.

This growth could indicate a somehow robust American economy, potentially leading traders to buy the US dollar (USD).

Housing Market Data:

The housing market is a bustling economic engine. Reports like home sales and housing starts track the country’s economic health.

Imagine a neighborhood with lots of “For Sale” signs replaced by “Sold” signs. This surge in home sales suggests a stable and growing economy. In return, it potentially strengthening the currency of that country.

Conversely, a decline in housing developments (new construction projects) might signal a slowdown. Thus, it potentially weakens the currency.

Manufacturing/Industrial Production Reports:

Factories are many economies’ production hubs. Reports on manufacturing and industrial production track how much outputs these factories are churning out.

Generally, rising production indicates a strong economy, often leading to a stronger currency.

For instance, China’s industrial output, which measures activity in manufacturing, mining, and utilities, grew by 6.7% in April 2024. It’s compared to the same month in the previous year.

This represents an increase from the 4.5% growth seen in March 2024, according to data released by China’s National Bureau of Statistics.

Hence, the positive data might make traders buy the Chinese yuan (CNY). Traders will believe that China’s industrial sector is thriving.

Consumer Confidence Surveys:

Consumer confidence surveys gauge 2 things: how optimistic people are about the economy and their spending habits?

Let’s say you’re planning a big purchase. But suddenly, you become worried about your job security. You might hold off on that purchase, right?

That’s the idea behind consumer confidence. A survey by the University of Michigan revealed that the consumer sentiment index declined by nearly 10 points in May 2024, dropping to 67.4.

This is the lowest level the index has reached since November 2023. This represents the sharpest decline in the survey in almost three years.

This relatively low score suggests people are likely to spend less. Thus, it is negative for the US economy and potentially weakens the USD.

Trade Balance and Import/Export Data:

Picture your country as a giant store. A trade balance report shows how much stuff it’s selling to other countries (exports) compared to how much it’s buying from them (imports).

A positive trade balance (exports exceed imports) is generally seen as good for a currency. It suggests the country is selling more of its goods and services abroad.

So, it’s bringing in more foreign currency and strengthening its own. For instance, Germany, a major exporter, consistently maintains a positive trade balance. This contributes to the strength of the Euro (EUR).

Business Sentiment/Confidence Indexes:

Business sentiment or confidence indexes gauge how optimistic businesses are about the economy.

If a survey shows rising business confidence, it suggests companies are likely to invest more, hire more people, and expand their operations – all positive signs for the economy and potentially the currency.

Conversely, declining business confidence might indicate companies are cutting back, which could weaken the currency.

For example: The National Federation of Independent Business (NFIB) reported that its Small Business Optimism Index rose by 0.3 points to 92.1 in September 2023.

This marks the second consecutive month of increases, following a decline in the first half of the year.

This high score suggests American businesses are feeling confident. It could be positive for the USD.

Remember: There are many other reports that can impact Forex markets. But, understanding these key indicators will give you a solid foundation.

Trading with the News: A Few Pointers

News trading can be exciting. Nevertheless, it’s important to be cautious.

Here are a few tips:

  • Do your research: Understand how a particular economic report might impact a currency based on historical trends.
  • Don’t chase every report: Focus on high-impact reports that are likely to cause significant market movements.
  • Manage your risk: Always use Stop-loss orders to limit potential losses if the market moves against you.

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