Traders around the world make a living by processing and translating information into money. The forex market is extremely sensitive to the flow of news related to it. Major short term currency moves are almost always preceded by changes in fundamental views influenced by the news. We live in the information age. It is an era where information can be an extremely powerful strategic asset. Information equals money especially to a trader. Shutting yourself off to the news can be suicidal. Timely information is vital to an individual or a corporation.
The speed of the news dissemination is very important to traders. Traders especially the day traders require the latest up to the second news updates. This facilitates their trading decisions which have to be made at the lightening speed. Many opt for instant online news services such as the Dow Jones Newswires, Bloomberg and Reuters which display the latest financial and economic news on their computer monitors. News is important to forex trading because each new piece of information can potentially alter the traders perception of the current or future situation relating to the outlook of certain currency pairs.
Information of great importance to forex traders is generally related to a countrys economic, monetary and political situations and socio-political events that are happening around the world like in Middle East and North Korea. Based on this news, these traders will be preparing to cover their existing positions or initiate new positions. A traders action is based on the expectation that there will be follow through in prices when other traders see and interpret the same news in a similar fashion and adopt the same directional bias as the trader as a result. This is in a way an anticipatory reaction on the part of the trader as he or she assumes that the other traders will be affected by the news as well. Because of the expected impact it has on other market players, news is a very important catalyst of short term price movements. Markets hate surprises. If a news item has a very low surprise value, market may not react much. But if the news item has a high surprise for the market, the reaction will be extreme volatility until the surprise has been digested by the market.
Suppose the news item happens to be bullish for the US Dollar. Traders who reacts the fastest will be the first to buy US Dollar. They are anticipating an uptrend in US Dollar. They will be followed soon by other traders. Other traders may be slower. They maybe were waiting for some technical criteria to be met before they jump on the bandwagon. However, all of them anticipate an uptrend to develop. When others get hold of the delayed news in the morning newspapers or from their brokers, there will be many who will join in the frenzy at a later stage. An uptrend has already started. When these traders join the bandwagon, they will be reinforcing the uptrend. This progressive entry of the US Dollar bulls over time is what sustains the upward move of USD against another currency.
Almost the reverse will happen on the surprise bearish US Dollar news. Traders who get the news first will start selling US Dollar instantly on the assumption that when other traders will hear the news, they will also start selling. A downtrend develops. Other traders join soon. The downtrend becomes strong. Forex market is constantly in the throws of news driven volatility. In the world of forex trading, there are no rules or restrictions against insider trading. Anyone who possesses information that is known only to a select few can and do trade that information in the forex market. Information is what drives the forex markets. News is information. Timely reaction to new information can be very profitable. Publicly released news is disseminated to the various newswires. Any trader who has access to these newswire services can tap into that information and react accordingly in the forex market.
However, you must know that the institutional players do get information that retail traders don’t have. Institutional players have access to the order book of their clients. They know the location of their market orders. They may also know something that others dont through their contacts in the industry. At times, this isolated news access may not translate into real market action if other players dont have that information. However, sometimes the news may give an unfair advantage to the institutional players. They may act on it before it becomes public. The efficient market hypothesis says that all publicly available information is immediately compounded into the prices. So insider information can be very valuable.
In nutshell, forex market is dependent on news. If there is no news, there will be negligible or little price movements in the market. Even if the currencies move based on the technicals, these technicals have been established previously by news or expectation of future news. Now the market reaction to the news is staggered. The market reaction to the news is specific as it depends on both the type of medium that the news is transmitted on and the type of news that is being released.
The online news service relay the information to the computer monitors of the traders at almost the same time as the market event occurs with no delay or a very slight delay that may be negligible. Most active traders get their information from these online market news services. So they can react almost immediately. However, there are many other less active traders who feel they don’t need real time news so they don’t subscribe to these online news services. They rely on market commentaries written by analysts and published on websites or in newspapers. These traders may take time to react to the same news that may vary from a few hours to a few days to weeks. The market reaction can thus be staggered.
Staggered market reaction means that the market will react over time. Some part of the reaction will be immediate while the other part will be delayed and come in a few hours to days to weeks. Part Market reaction may be immediate within the first few second from those who receive real time news. Part market reaction will be more delayed reaction from those who obtain the same news hours or even days later. The market reacts differently to different news. Some news may produce little or no reaction at all. Forex economic calendar is usually packed with an average of twenty to thirty economic news releases per trading day. During times of scheduled news releases, currency prices adjust very rapidly to the released data. You have to be selective to what news to focus on as the market reacts to a varying degree in relation to the type of news that is released.
Forex market reacts to what of the news rather than the why. For example, the currency prices will move as the market reacts to the better than expected unemployment figures. The market will not have time to consider why the unemployment figures are better this month as compared to the last month. Trading is all about taking advantage of what of the news. If you are more concerned about the why of the news rather than what of the news than you should stop trading and become an analyst.
Hassam 
