In forex trading there are few different types of analysis method, which are Technical Analysis, Fundamental Analysis and Sentiment Analysis. In today’s article we will take a look at what is Fundamental Analysis and how do we apply it into Forex trading.
Fundamental Analysis where traders are trade following and analyzing news and similar economic data to gauge how the market might react and respond to the release of the news. Such as the popular monthly Nonfarm Payroll.
What News Release Should Be Your Focus?
As a general rule, since the U.S. dollar is on the “other side” of 90% of all currency trades, U.S. economic releases tend to have the most pronounced impact on forex markets. Such as the U.S. Nonfarm Payrolls and FOMC minutes.
How Long Does the Effect Last?
According to a study by Martin D. D. Evans and Richard K. Lyons published in the Journal of International Money and Finance (2004), the market could still be absorbing or reacting to news releases hours, if not days, after the numbers are released.
The study found that the effect on returns generally occurs in the first or second day, but the impact does seem to linger until the fourth day. The impact on the flow of buy and sell orders, on the other hand, is still very pronounced on the third day and is observable on the fourth day.
Though personally I would suggest to
focus on the first or second day for a more stable market movement.
Which Currencies Should Be Your Focus?
There are literally dozens of currencies that can be easily traded on the Forex trading platform. To give you a better idea on how to choose the right currencies to trade with, you should shift your attenion depending on where is the news is releasing. For example, you will pay attention to USD pairs for U.S. Nonfarm Payroll, and JPY pairs for BOJ (Bank of Japan) Interest Rate Decision.
Also you can pay more attention the following currency pairs due to the active price movement these currency pairs associate with. Meaning when news bring impact on these markets, it’s likely to have big movements and which will bring up the profit amount as well.
There are some strategies that you can use to trade the news, something simple as the Simple Moving Average crossover will likely to bring a promising result.
Take a look at this video here to find out more on how you can trade the news in forex trading.
If you have any question on how to trade news in Forex, come and talk to me now!
Hirose Customer Portal will be under maintenance during the following period:
from 21st May, Friday 23:00GMT
to 22nd May, Saturday 04:00GMT
Please note that Customers will not be able to access Customer Portal during the mentioned time. We apologize for the inconvenience that may cost you, and thank you for your understanding.