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Sunday March 28, 2010 - 12:16:07 GMT
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Trading the News – A Different Perspective

There have been many articles written about trading the news, which generally refer to trading after an economic report is released or after a comment by a scheduled speaker (e.g. monetary or finance official). We even devoted a chapter to this topic in our book. However, this is not the purpose of this article. The aim of this article is to discuss a different aspect of trading the news, which is what I refer to as “news headline trading.”  Given the way unexpected news headlines can affect trading, this topic is worth pursuing. A technical trader may argue that all the news is baked into the charts. I contend that a surprise news headline can undo even the most well designed technical scenario. Please note a special bonus offer at the bottom of this page after you finish reading this article.

 

What is “news headline trading” and how is it different from trading the news? News headline trading refers to an unexpected headline that causes a market reaction as opposed to trading the news, where the market is setup in advance waiting for a specific event. In both cases, the greatest reaction is caused by the element of surprise. However, in the case of news headline trading, the surprise is not only the news but the headline itself as there is no way to predict in advance that it will be reported.

 

The nature of surprise in a news headline being reported forces a trader to interpret the news on the fly as the market tends to react first and then assess the reaction afterwards. However, there is no hard and fast rule to interpreting market reactions to surprise news headlines. Sometimes the market shrugs it off, sometimes it reacts but then reverses course, and other times it may overreact and move farther and faster than the news seems to warrant. A lot depends on the technical trends in the market at that time, both intra-day and longer-term, the current theme in the market, whether it is overbought or oversold, whether there are stops, how the market has been reacting to news of late, fundamentals driving the current trends, to name a few.

 

There are times when the market is especially sensitive to news headline trading, such as the sovereign debt crisis involving Greece but it tends to have an influence on almost a daily basis. To better illustrate these points, some examples from the past few days forex trading are worth noting after a week where there were so many news headlines that it made your head spin.

 

On Thursday, the market was nervous as an EU Summit was being held, presumably with a Greece bailout at the top of the agenda. Expectations were low that an agreement would be reached although there were hints that some sort of deal might be announced. The EURUSD was trading soft nevertheless at around 1.3335 when a news headline came out that Germany and France had agreed on a deal on Greece. This saw the EURUSD immediately spike higher and through stops above its intra-day high before reaching a top at 1.3386. It then quickly reversed as details came out that IMF aid was involved and this saw the EURUSD fall sharply to a new low. You had to be quick on your feet to catch the move up and then even quicker to get out and reverse as more details were revealed. The market was still bearish on the euro at this time and skeptical of any deal that involved the IMF. You had to be aware of this fact in order to guess how the market would react.

 

Later that day, with the EURUSD trading at a new low, a news headline came out that ECB President Trichet said that IMF aid for Greece would be “very, very bad.” This saw the EURUSD fall sharply to a new low. Those who follow Mr. Trichet know he measures his words carefully and rarely misspeaks. So, the market took this very negatively, which was predictable given the fragile technical state of the EURUSD at that time.

 

The news trading headline saga continues. The EURUSD fell to a new low (1.3268) in early Far East trading on Friday when yet another news headline hit the wires. This one reported that Trichet said his remarks were misunderstood and he never said that the Greek deal was bad. This was an obvious attempt at damage control and the EURUSD initially had only a modest reaction upwards as traders remained skeptical. However, as the day wore on the EURUSD found support as Greek concerns eased a touch and pre-weekend book squaring took over in a market that had gotten overextended. In this case, the news headline provided a floor for this pair and then market forces took over. As with any news, it is the reaction more than the news itself that gives a clue as to underlying currency strength or weakness.

 

We are not finished. On Friday, the EURUSD had extended its high to 1.3412 during the US-Europe session but then corrected lower and was trading around 1.3350 when yet another news headline hit the wires. This one said that S&P had affirmed Portugal’s A+ rating. This was a headline that just a few days ago would have either been shrugged off or seen only a modest uptick in the EURUSD before reversing course as the market sold on the lack of a positive reaction. It is important to note that credit rating agency news, especially downgrades and warnings have had negative reactions during the Greek sovereign credit crisis so any news from these sources would attract market attention. In this case, the EURUSD quickly spiked 25 pips higher, paused and then climbed to an eventual high at 1.3420 before settling back into consolidation for the rest of the session. A news headline that should not have had much of an impact saw EURUSD move around 70 pips. The price action underscored the currency risk on Friday, which was on the EURUSD upside.

 

The purpose of these examples is not to give a recap of the day’s trading but rather to illustrate the importance of being aware of how news headline trading can impact the market in different ways. Having an awareness of how the market has been reacting to certain types of news can help you interpret on the fly the latest news headline. You also have to have to be aware of underlying trends to help gauge the reaction and whether it is one you have to go with, fade or sit out. News headline trading is like surfing a wave. You have to be one step ahead of it or you will get caught and wiped out in the wake.

 

In a forex market that has been increasingly buffeted by surprise news headlines, it is important to have access to not only the news and latest rumors but to a place where you can interpret the significance of it as well. For those interested in access to a place where news and rumors are interpreted on the fly, please contact me by return email about access to our GVI Forex service. Please note the bonus offer posted below.

 

Jay Meisler

  

Bonus Offer: As part of our spread the word campaign, we would like to offer a bonus access to GVI Forex ahead of the key US employment report on Friday and a special video by Tornbridge AL, “Will the current USDJPY pattern unfold in the same way as has been seen in recent past via the EURUSD. “ To get a free trial for GVI Forex, send an email to jay@global-view.com with Bonus offer in the subject box. To get an extended trial to GVI Forex, copy this report and forward it by email to a friend or colleague with a cc to news@global-view.com in the address box. We will then contact you with extended GVI Forex access details. This offer is open to those who have taken GVI trials, former subscribers and those who have not tried GVI Forex.

 

 

Jay Meisler has been trading the forex market for more than 30 years, as an interbank dealer, fund manager and independent trader. He is a co-founder of   Global-View.com the leading forex discussion site and home of the original forex forum. Global-View is a place where traders come for forex trading ideas, latest rumors, flows and breaking news.

 

 

 

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Daily Forex Market News
Forex news reports can be found on the forex research headlines page below. Here you will find real-time forex market news reports provided by respected contributors of currency trading information. Daily forex market news, weekly forex research and monthly forex news features can be found here.

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Real-time forex market news reports and features providing other currency trading information can be accessed by clicking on any of the headlines below. At the top of the forex blog page you will find the latest forex trading information. Scroll down the page if you are looking for less recent currency trading information. Scroll to the bottom of fx blog headlines and click on the link for past reports on forex. Currency world news reports from previous years can be found on the left sidebar under "FX Archives."



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