Understanding forex news & how it affects currency prices.
Last week the Aussie unemployment figures, as shown on Forex Factory, came in as expected in terms of the % of people out of work, but the employment change was worse at-0.5k as opposed to the expected 9.1k and yet the Aud went up.
I received a question from new member Steven “hey guys, I was looking to short the Aud and that was confirmed for me with the news, but the price has gone up, why?!”
The first thing to note is that this is forex and you just need to get used to the idea that at times it appears on the surface to be completely illogical!
Another thing to note is sometimes, for example, an interest rate rise is expected.
The news comes out and yes they raised rates.
So now the price will shoot up? No, it fell off a cliff!
This could be because the rate rise was “factored in.”
It could happen this month with the Fed. If they cut the rate in the USA by 0.25% the $ may still drop because it was already anticipated & a lot of experts were expecting a 0.5% cut. The bottom line is if you are paying attention to news you need to get in the habit of looking below the surface.
I showed in Tuesday’s live training session how important it is to dig deeper and especially pay attention to what the central banks say. Governor Lowe of the Reserve Bank of Australia seems to be a lot more transparent than most of the other central bankers and told us earlier this month, why they had cut rates and what data they were focusing on to decide whether they needed to cut again. Pay particular attention to the statements that are released after the data and especially if there is a press conference afterwards.
Here is Governor Lowes from the 2nd of July: https://www.rba.gov.au/media-releases/2019/mr-19-18.html
It’s in plain English and I show you in the short video how to interpret what he is saying and then what upcoming red flag news to focus on and what to look for.
Here are the supporting notes from the Australian Bureau of Statistics
Notice how the headline data from Forex Factory doesn’t give the full picture.
As you will know from the technical course, in the Education area, and the Fundamentals section of the majors. The 3 main areas you need to focus on when valuing a currency are: growth, inflation and interest rates (current rates and expected futures rises or cuts).
When you see red flag news listed in the calendar for the week ahead always bear these 3 things in mind.
Jobs news is always important. The more people in work, the more money will be spent in the shops (retail sales) which will assist the growth of the economy and inflation.
CPI (core price inflation) is what the central banks are targeted to achieve, usually, around 2% is the norm.
The trade balance shows the country as a whole. All countries prefer to have a surplus, ie sell more to other countries than they buy.
Check out today’s short video. This is Fundamentals 101 in less than 10 minutes!