Before developing a trading strategy, traders should be familiar with event risks that heavily impact the Forex trading market. During normal market conditions, shifts in government policy along with economic developments tend to drive market action, and being able to identify the key event risks can help avoid being on the wrong side of the market.
Have a Plan
There are a few strategies that you should think of us when trading news events. There is a caveat, finding the style that fits one’s trading personality and then tailoring it to meet different needs can help curb the risk for loss and at the same help to possibly profit from market volatility. Some strategies involve setting up entry orders ahead of the event risk, while others are based on mathematical calculations. All require prudence and flexibility given the inconsistency in market reaction. One must recognize that at times, the best move can be to stand aside when traders show a muted reaction to the news or when the market turns choppy.
Trading News Events
Trading major US news events has been in 2011. This has been given due to the strong correlation between the US dollar and risk, but these dynamics may break down in the following year as the fundamental outlook for the world’s largest economy improves. Indeed, the Fed’s zero interest rate policy has been one of the culprits behind the risk driven market this year. We expect to see fundamentals playing an increased role next year as the central bank eases its dovish tone for monetary policy. As the economy speeds it recover up, this limits the Fed’s scope for another large scale asset purchase program. This means we should see the FOMC carry out ‘Operation Twist’ in 2012, and the central bank may end its easing cycle in the following year as economic activity gradually strengthens. As the risk of seeing QE3 wanes, fundamental developments might have a greater impact on the dollar’s exchange rate. The market reaction should be even more straight forward in the following year as the Fed begins to put an end to the speculation for additional monetary support.
The economic docket for the week of 2012 is expected to include the all important US Non-Farm Payrolls. We are expecting this to be increasing another 150K in December. The ongoing improvement in the labor market should support the Buck. However, if the FOMC minutes due on Tuesday might shake up the currency market. These minutes could cause investors to weigh the prospects for monetary policy. We might see the Fed raise its fundamental assessment for the region and the central bank may endorse a wait and see attitude throughout the first-half of 2012 as the sovereign debt crisis dampens the outlook for the world economy. This could mean that Bernanke may preserve a cautious outlook for the US, but we may see him curb expectations for another round of QE as the economy revolves around a double-dip recession.
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