Now you have seen the main 'players' within FX trading (market participants) we can look at reasons for market prices to move.
Remember that it is the major players who account for the vast majority of money flows - and it is the flow of money from one currency to another that causes prices to fluctuate and create trends across various markets. Whilst the actual money flow could be for speculative reasons, hedging for protection for clients, or purchasing assets, expectations of changes in monetary flows also play a big part.
These expectations from the participants could come from changes in GDP (gross domestic product), inflation, interest rates, budget and trade deficit/surplus, along with other macroeconomic conditions.
Potenially volatile news events
GDP (Gross domestic product)
Trade deficit and surplus
Force majeure (Worldy events)
Nonfarms payroll and unemployment rate
The most closely watched news release is the US Nonfarms payroll and unemployment, as it can create a lot of volatility during and after the release. Watch the webinar below for an in depth tutorial on why this is such an important news event.
So how do we monitor these potential market movers? Whilst we cannot forsee worldly events we can use an economic calendar to monitor which important news releases are scheduled for the days, weeks and months ahead.
Economic calenders highlight publicly released news for specific countries, meaning people around the world have access to the same news at the same time. Whilst this is great for retail traders like ourselves it is also good to realise that the banks have one major advantage - they can see their clients order flows to see where money is flowing into (and out of).
Sentiment can be used for both long and short term traders. For those on a longer time horizon they are likely to look at trends of the data over weeks and months and compare this alongside prices of relevant FX pairs.
Below is Canadian CPI, which is a proxy for inflation. Here we can see CPI is within a downtrend to suggest deflation. The Canadian dollar (at the time of writing) is also within a downtrend along with CPI. If we were to notice that a negative CPI figure was released, or a series of them released yet price failed to trade much lower, this is a suggestion that the markets bears may have begun to hibernate, and price could reverse over the coming days, weeks or months.
A short-term trader would see that the next release has a consensus (expectations of many analysts) of an average of 1.3%. At the time of the release if we get a deviation away from this 'expectation' we can expect a larger market move around the release as this is considered to be a surprise to the market.
This is a very popular form of trading in the FX market. These traders specialise in trading at or around the news release and similar to the example above, they seek deviations away from the expectations to seek more volatile moves.
Let us take an example of a news trader who specialises in the USDJPY. They would go to the economic calendar and open the filters.
They would then only select United States and Japan news, push the slider up to the red !!! (to only filter red news events of USD and JPY) then select 'filter results'.
They would then see high impact news that is likely to affect the USDJPY and they can plan their trading week accordingly, knowing when they can expect some sort of market movements, or at the very least prepare a trading plan in the event of a market movement.
The 3rd approach, and possibly less exciting, is to use the same techniques to filter for high-impact news and make sure you do not place trades at this time. This is more suited to traders who used the 1hr, 4hr and daily charts to enter their trades (or 'set and forget').