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Before developing a ‘Trade the News” strategy, we have to look at which news events are even worth trading.

You want to be able to answer, “Which news releases should I trade?

Forex traders should familiarize themselves with the key event risks that heavily impact the major currencies.

Remember that we are trading the news because of its ability to increase volatility in the short-term, so naturally, we would like to only trade news that has the best market-moving potential for the currency market.

The news that tends to drive price action and produce volatility usually involves:

  • Changes in central bank policy (“monetary policy”)
  • Shifts in government policy (“fiscal policy“)
  • Unexpected results in economic data releases
  • Random tweets from a certain world leader who likes to put his name on tall buildings

Being aware of upcoming key event risks can help avoid being on the wrong side of the market.

How to Find Events that Produce Volatility

The BabyPips.com Economic Calendar highlights the important events and economic data that are being released by the countries with the most popularly traded currencies.

Economic Calendar

The number of events scheduled can reach over a hundred on any given week! Trying to sift through so many events can be a pain in the butt.

Luckily for you, our Economic Calendar makes it easy to identify the relative importance of each specific event.

Economic Calendar Filter by Impact

In our Economic Calendar, you have the ability to filter event listings by “Impact“.

For example, by selecting only “HIGH“, the Economic Calendar will only display the events that have historically been known to produce market volatility. 

If you spend some time exploring the Economic Calendar, you’ll start to notice that the most important events usually relate to changes in interest rates, inflation, and economic growth, like retail sales, manufacturing, and consumer sentiment.

Here are some examples:

  • Interest rate decisions by central banks
  • Inflation (CPI, PCE, PPI)
  • Employment data (unemployment, wage growth)
  • Economic growth (GDP)
  • Retail sales 
  • Industrial production
  • Business sentiment surveys
  • Manufacturing sector surveys
  • Consumer confidence surveys
  • Housing data (sales, construction)
  • Trade balance

Different countries may use different names for similar data but we try to point that out in the Economic Calendar.

Depending on what’s currently happening in the world, the relative importance of this event may change. 

For example, interest rate decisions may be the main focus during a certain time, while during a different time, it will seem like nobody cares.

This is why it’s important to stay informed and know what the market is focusing on at the moment.

Pay Special Attention to News from the U.S.

While the markets react to most economic news from various countries, the biggest movers and most watched news come from the U.S.

News Releases

The United States is still considered the world’s most powerful country,  whether it’s in the domain of military affairs, geopolitics, industry, energy, science, culture, and technology.

It is even described as a “financial superpower.”

Even if its position has been eroded by setbacks, imbalances, and weaknesses, the strength and influence of the US dollar will not be matched anytime soon.

The United States still has the largest economy in the world and the U.S. dollar is the world’s reserve currency.

This means that the U.S. dollar is a participant in about 90% of all forex transactions, which makes U.S. news and data important to watch.

With that said, let’s take a look at some of the most volatile news for the U.S.

Most volatile news reports in the forex market

In addition to inflation reports and central bank speeches, you should also pay attention to geopolitical news such as

  • Pandemics
  • Wars
  • Natural disasters
  • Political unrest and protests
  • Upcoming elections

Although these may not have as big an impact as the other news, it’s still worth paying attention to them.

When our economic nerd, Forex Gump, is in a good mood, he usually releases an article on upcoming news reports that you can play and with trade strategies to boot!

Also, keep an eye on moves in the stock market. Especially the U.S. stock market.

There are times where sentiment in the equity markets will be the precursor to major moves in the currency market.

Now that we know which news events make the most moves, our next step is to determine which currency pairs are worth trading.

How to Choose Currency Pairs to Trade the News

After identifying the event to monitor, you now want to trade the currency associated with that event’s economy.

Choosing the appropriate currency pair is an important decision when “Trading the News”.

As a news trader, you are trying to achieve two things:

  1. Take advantage of the short-term spike in volatility…
  2. While keeping your transaction costs as low as possible

Because news can bring increased volatility in the forex market (and more trading opportunities), it is important that we trade currencies that are deeply liquid.

Currencies with deep liquidity have the tightest spreads which is what allows you to keep your transaction costs low.

Liquid currency pairs give us a reassurance that our orders will be executed smoothly and without any “hiccups”.

  1. EUR/USD
  2. GBP/USD
  3. USD/JPY
  4. USD/CHF
  5. USD/CAD
  6. AUD/USD

Did you notice anything here?

That’s right! These are all major currency pairs!

Remember, because they have the most liquidity, majors pairs usually have the tightest spreads.

Since spreads widen when news reports come out, it makes sense to stick with those pairs that have the tightest spreads, to begin with.

Now that we know which news events and currency pairs to trade, let’s take a look at some approaches to trading the news.