Why Forex Traders Should Pay Attention to U.S. Earnings Reports

If there’s one season that investors eagerly mark on their calendars – no, it’s not the highly-anticipated Season 6 of Game of Thrones – it’s the U.S. earnings releases every quarter! In fact, the earnings season is already upon us so y’all better start reading up on how this can affect the forex market.

What are U.S. earnings reports all about?

Simply put, U.S. earnings reports show how much profits companies have made in the past quarter compared to the previous one. For future reference, the earnings season typically begins one or two weeks after the last month of each quarter so the current figures being released refer to company earnings for Q3 2015.

As you’ve probably guessed, these reports tend to have a huge impact on the U.S. equity market, especially if the well-known companies like Apple, Walmart, or JPMorgan beat or miss expectations. In addition, hardcore investors also scrutinize corporate balance sheets to get more clues on how the company might perform in the next quarters.

Wait a minute. Does this have anything to do with the forex market?

If you’ve been paying attention in our School of Pipsology lesson on Intermarket Correlations, you’d remember that stock market performance could have an impact on the local currency’s forex price action. Since quarterly earnings reports can spur strong moves for equities, these can wind up pushing U.S. stock indices in a particular direction.

In particular, strong earnings figures usually translate to overall stock market gains. In turn, this can either shore up demand for the U.S. dollar as investors get their hopes up for a Fed rate hike or spur risk rallies for higher-yielding currencies, depending on what’s driving the Greenback lately.

So what’s driving the Greenback lately?

A quick review of the Dollar Smile Theory reveals that the U.S. economy is already on the third scenario, as forex market watchers are on the lookout for a possible interest rate hike. This suggests that strong U.S. earnings reports could lead to dollar gains while weak figures could trigger losses since this would add to the long list of reasons why the Fed might decide to delay their liftoff.

This market theme has been evident in the dollar’s reaction to the U.S. retail sales reports released earlier this week and the September NFP figure a couple of weeks back, with dismal readings forcing the Greenback to retreat against its forex rivals.

How can I trade these reports?

Trading the U.S. earnings releases can be a little trickier compared to the usual forex news-trading strategies mostly because there’s just too much data to be digested. Even if you focus on the top companies, accounting terms and figures for revenues, operating income, sales, profits, earnings per share, and P/E ratio among many others can be quite overwhelming… or boring.

If you’re looking to catch some forex moves from these earnings reports, you can pay attention to how equity indices such as the S&P 500, DJIA, or Nasdaq are reacting to the releases, as these will give you a general sense of what the financial market thinks of the numbers.

If you’ve already got dollar positions open, just be on the lookout for potentially large swings when the larger U.S. companies start printing their earnings reports. So far the results have been mixed, but it wouldn’t hurt to have an earnings calendar ready if you don’t want to get caught up knowing nothing (We all know what happened to Jon Snow, right?) in case winter is coming.