Why does news have reverse effect on the Currency? | Forex Factory

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Why does news have reverse effect on the Currency?

  • #1
  • First Post: Sep 27, 2011 1:43am Sep 27, 2011 1:43am
Not long ago i've waited the news for M3 Money Supply (EUR) and Private Loans (EUR).

While both of the results is good for currency, why on the reality the euro is plunge down?

Does anybody know the answer?

Thanks,
alv
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  • #2
  • Sep 27, 2011 3:34am Sep 27, 2011 3:34am
M3 Money Supply report is ambiguous, because rising money supply could mean a higher supply of currency, which is bad for it. It could also mean a higher supply of money in the country, which means a higher inflation and a higher probability of interest rate hike, which is good for currency.
  • #3
  • Sep 27, 2011 4:04am Sep 27, 2011 4:04am
Quoting enivid
M3 Money Supply report is ambiguous, because rising money supply could mean a higher supply of currency, which is bad for it. It could also mean a higher supply of money in the country, which means a higher inflation and a higher probability of interest rate hike, which is good for currency.
Hi, enivid, thanks for the answer

so... the negative effect is because the rising of money supply and then less people want EUR? do some other news have reverse effect too? (I'm new to news trading )
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  • #4
  • Sep 27, 2011 2:18pm Sep 27, 2011 2:18pm
Quoting alvseek
do some other news have reverse effect too?
Unfortunately, almost all of them do.
  • #5
  • Sep 28, 2011 9:31am Sep 28, 2011 9:31am
Quoting enivid
Unfortunately, almost all of them do.
D:

this is shocking for me...

so, actually, one couldn't predict which way the price will be moved by news even if the result of the news is known?

if so, then how does traders could get benefits from those news information?
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  • #6
  • Sep 28, 2011 9:45am Sep 28, 2011 9:45am
Quoting alvseek
D:

this is shocking for me...

so, actually, one couldn't predict which way the price will be moved by news even if the result of the news is known?

if so, then how does traders could get benefits from those news information?
Economic releases are just a reason to move price. The banks will move price in the direction of the trend, irregardless whether the numbers are for or against a particular currency.

An example was the durable goods report this morning. The numbers were negative for the USD, but price moved in favor of the USD.
Reason: longer TF trends are currently down.
Mark ... Everything you have been told is a LIE
  • #7
  • Sep 28, 2011 8:33pm Sep 28, 2011 8:33pm
Quoting spzd
Economic releases are just a reason to move price. The banks will move price in the direction of the trend, irregardless whether the numbers are for or against a particular currency.

An example was the durable goods report this morning. The numbers were negative for the USD, but price moved in favor of the USD.
Reason: longer TF trends are currently down.
Oh, ok, now i get it.

Thanks spzd
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  • #8
  • Sep 29, 2011 2:41am Sep 29, 2011 2:41am
I can't agree with spzd on this (the durable goods orders report was positive for USD as they fell less than expected and July number was revised positively). It's not the trend you should watch, but rather the general sentiment of the markets - are traders risk-averting or are they risk-hungry - and treat news from this point of view. The problem is that the market's mood may change anytime.
  • #9
  • Sep 29, 2011 4:44am Sep 29, 2011 4:44am
Quoting alvseek
Not long ago i've waited the news for M3 Money Supply (EUR) and Private Loans (EUR).

While both of the results is good for currency, why on the reality the euro is plunge down?

Does anybody know the answer?

Thanks,
alv
Normally if data comes out as expected it wont do any good do the currency unless its shoots up the expectations significantly.

When it comes to news trading, more the data could surprise the markets more predictable things will get.

on the other hand nobody cares about Money supply etc these days anyway, its all about Debt crisis in Europe and things that could effect Fed's policy in US.
.
  • #10
  • Sep 29, 2011 7:03am Sep 29, 2011 7:03am
Quoting nasir.khan
Normally if data comes out as expected it wont do any good do the currency unless its shoots up the expectations significantly.
And, how much "shoots up" value (or how far from the forecast) is needed to make benefits for the currency?

Quoting nasir.khan
When it comes to news trading, more the data could surprise the markets more predictable things will get.
Could you give me example about this?
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  • #11
  • Sep 29, 2011 7:05am Sep 29, 2011 7:05am
Quoting enivid
I can't agree with spzd on this (the durable goods orders report was positive for USD as they fell less than expected and July number was revised positively). It's not the trend you should watch, but rather the general sentiment of the markets - are traders risk-averting or are they risk-hungry - and treat news from this point of view. The problem is that the market's mood may change anytime.
so then, predicting news is just as hard as predicting other day-to-day movement?

Maybe the benefits from news is that we'll know that some volatile movement will be happening regardless the direction?
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  • #12
  • Sep 30, 2011 1:14am Sep 30, 2011 1:14am
Quoting alvseek
And, how much "shoots up" value (or how far from the forecast) is needed to make benefits for the currency?
There is no formula for this. Its just about how much markets have priced in and on which side data falls.

For example if last month some number came out at 110, and now this month market expects a number of 115. If the number comes at 115 as expected than there would be not much effect on price, In order to surprise the market on the upside you need to have something like 120 or above. But if data come out just below 110 like at 109 than you will get a nice sell-off as it will take many traders off guard thus triggering a panic.

but again those are just BS numbers i pulled out of nothing, its all about the feel and being synced with the marts.

Quote
Could you give me example about this?

I can but you wont understand until you read up on how markets behave in risk-aversion and risk-taking (appetite) environments (which are high yield ccy's and which ones are safe heaven? and why,..etc).

But for whatever its worth take natural disasters for example's, there are one of the most unpredictable/unexpected things that could happen to markets. but what happens next is very predictable. Money flows out of high yielding risky assets (AUD,EUR,GBP,Stocks etc) and flow into safe heavens(USD,CHF,YEN,Gold etc).

You wont learn all this stuff by asking questions about every little detail on this forum, you have to read stuff about how actually Markets work by reading about Macro-Economics and stuff.
.
  • #13
  • Sep 30, 2011 2:45am Sep 30, 2011 2:45am
Quoting nasir.khan
You wont learn all this stuff by asking questions about every little detail on this forum, you have to read stuff about how actually Markets work by reading about Macro-Economics and stuff.
.
Ok then, it's another deep study again

Thanks btw, nasir
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  • #14
  • Oct 2, 2011 10:32pm Oct 2, 2011 10:32pm
Quoting alvseek
Not long ago i've waited the news for M3 Money Supply (EUR) and Private Loans (EUR).

While both of the results is good for currency, why on the reality the euro is plunge down?

Does anybody know the answer?

Thanks,
alv
This is a complex topic. There are multiple reasons for why price move opposite to the news release.

Let's take Private Loans (EUR) as an example. Private loan is not an end in itself in the context of impact to EUR dollar. Private loan has a positive effect on EUR if these credit goes into growing euro economy via increased consumer spending and/or increase capital investment in production etc. There is a positive correlation between private loan and consumer spending and capital investment etc.

Private Loans (EUR) report is released on the last week of Sep. However, Euro retail sales m/m is already released on the first week of Sep (3 weeks ahead). Since there is a positive correlation between these reports, you can expect the positive "better-than-analyst-consensus" private loan result to be already priced in (true to the positive correlation, Sep euro retail sales is also "better-than-analyst-consensus" in the first week). Therefore, private loan report is a no-surprise and a non-mover with respect to price.

Due to this, private loan is often treated as a lower tier economic report compared to say euro retail sale report. Professional trader pays more attention to retail sale report as a result. Having said that, we should also not dismiss lower tier economic report. When a lower tier report signal a break in the usual correlation (for e.g. bad retail sale but good private loan), it often hint on something which is worth taking note. You will look around where these credit actually goes to (housing? Increased production?).

The above could be one reason.

The second reason is current market sentiment. At the point when private loan is released the market sentiment is hugely bearish on possibility of Greek default as well as bad euro PMI and industrial new order number in the 3rd week of Sep. No amount of good economic report is going to lift the bearish pressure on euro dollar until the uncertainty on Greek default is lifted or a few tier 1 economic reports surprise massively to the upside. Bear in mind that all economic report are history information of the past and part if not all of it could have already been priced into current market price. Therefore only huge 'surprises' can move the price opposite to the current market sentiment. Therefore, people always say to trade with the trend until you are a very seasoned trader.

The third reason is related to how professional trader operate. Professional traders are always one or more steps ahead of the crowd. Way before a economic report is released, they would have built up their position to benefit from the report. When the report is released, these trader will square their position which explains why prices move opposite to the report result. This is typical "buy the rumor sell the fact" strategy.

One other point to note on trading news release is patience. Upon news release, there is normally a period of price volatility. If not sure, try to stay out until the price volatility settles down. The volatility is the period when all the professional traders square their positions and big boys readjust their portfolio exposures and hedges and price can whipsaw widely without any indication on which direction the price will eventually move. As a retail trader, its tempting to join in to the price spike bandwagon but the risk of doing so normally outweigh the benefits.

There is a lot more to say which is too lengthy to discuss here. Invest enough time in the market and I am sure you will learn in time to come. In the meantime, safeguard your trading capital religiously until the day when you are ready to take on the market with confidence.
  • #15
  • Oct 3, 2011 7:12pm Oct 3, 2011 7:12pm
Quoting Hareii
This is a complex topic. There are multiple reasons for why price move opposite to the news release.
Wow, this is very helping, thanks a lot Hareii
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  • #16
  • Oct 3, 2011 7:29pm Oct 3, 2011 7:29pm
Quoting alvseek
so then, predicting news is just as hard as predicting other day-to-day movement?
Actually, I think it's much harder. There is really no way to 'predict' what a news release will do to an exchange rate, regardless of the number. Sometimes it seems obvious, but much more often it is not.

Trying to predict a movement based on a release number will only give a trader a personal bias to the direction. It is much more important to learn to read price action and follow the markets clues.

It's the "other day-to-day movement" that one should be focusing on trying to master. So, no easy route to riches. You really have to want it pretty friggin badly.

But, as was said before in this thread, news release times should be watched because you can expect higher volatility at those times. Sometimes very high. The release time is more important than the release number for an intra-day trader. The market does often wait for the release time to pass before it goes and does whatever it was going to do anyway,
  • #17
  • Last Post: Oct 5, 2011 8:25pm Oct 5, 2011 8:25pm
Quoting Price
Actually, I think it's much harder. There is really no way to 'predict' what a news release will do to an exchange rate, regardless of the number. Sometimes it seems obvious, but much more often it is not.

Trying to predict a movement based on a release number will only give a trader a personal bias to the direction. It is much more important to learn to read price action and follow the markets clues.

It's the "other day-to-day movement" that one should be focusing on trying to master. So, no easy route to riches. You really have to want...
Yes, I've made a mistake. before i created this thread i think it was easier to trade in the news because there are analysis provided in the details. but then, it's not quite likely tho

Quoting Price
But, as was said before in this thread, news release times should be watched because you can expect higher volatility at those times. Sometimes very high. The release time is more important than the release number for an intra-day trader. The market does often wait for the release time to pass before it goes and does whatever it was going to do anyway,
Yes, agreed with this. even some minute before news out is already volatile.
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