Major economic events attract scalpers and day traders because they usually inspire increased volatility. Unless they’re market-changing events though, they’re also susceptible to fakeouts and profit-taking.
Let’s take a look at three economic events that might have killed the positions of news traders who weren’t fast enough to take profits early!
1. AUD/USD: RBA Statement
The initial reaction: Early this week the Reserve Bank of Australia (RBA) kept its rates steady at 2.50%. However, RBA Governor Glenn Stevens stole the spotlight when he said that the Aussie is “uncomfortably high.” AUD/USD ended up dropping to the .9460 area on speculations of future rate cuts.
The fade: AUD/USD started popping up at the London session open. Apparently, investors felt that the RBA isn’t likely to cut rates since the Australian housing market is already firing up the inflation rate.
2. EUR/USD: ECB Rate Cut Rumors
The initial reaction: A day before the European Central Bank (ECB) released its interest rate decision the euro received a boost on rumors that a secret ECB source rejected the possibility of a rate cut. Not surprisingly, EUR/USD broke above the strong intraday resistance near the 1.3500 handle.
The fade: At the end of the day (literally), rumors are just rumors. Speculators quickly took profits before the actual ECB decision and EUR/USD ended the day just below the London session resistance. It was good for the bulls while it lasted though!
3. USD/JPY: Upside Surprise in U.S. GDP
The initial reaction: USD/JPY has been knocking on the 99.00 handle all week and the bulls finally got a chance to push the pair higher when the advance quarterly U.S. GDP came in at 2.8%, higher than the previous quarter’s 2.5% growth.
The fade: Traders questioned the sustainability of Uncle Sam’s economic growth especially since the report hasn’t factored in the impact of the U.S. government shutdown and the weak NFP reports. USD/JPY spent less than four hours above 99.00 before it fell all the way to the 97.60 area. Ouch!
There you have it folks! Although the instances above would make news traders think twice about pulling the trigger, remember that a lot of painful losses can be avoided by preparing for different scenarios, being flexible, and not being too greedy. Something to think about ahead of next week’s major news events, don’t you think?