Do you ever feel like market turbulence during news events catches you off guard?
How is it that some traders can navigate these stormy periods with ease…
…while you’re left scrambling!
Trust me, I’ve been there.
Fortunately, it’s not luck or intuition, though.
It’s all down to strategy.
Successful traders don’t just trade the news – they actively plan for it!
At first glance, trading through news might feel like navigating a minefield of unexpected spreads, sudden gaps, and extreme volatility that can shake even the most seasoned trader.
But with the right approach, you can definitely handle these challenges with confidence.
In this article, I’ll guide you through the essentials of news events:
- The different types of economic news
- How market expectations set the scene
- How the actual economic data points affect the charts
- The role the USD has on the forex market
- Some risk management tools to protect you during news events
Ready to take control of your trades, even during the most turbulent market moments?
Let’s dive in!
Types of Economic News: High, Medium, and Low Impact
Let’s face it: not all economic news hits the market with the same force.
Some events cause massive waves of volatility, while others barely make a ripple.
If you want to trade smart, you need to know which news moves the needle and how it influences the markets.
Let’s break it down:
High-Impact News: The Market Movers
These events are the heavy hitters.
When high-impact news drops, markets can react in the blink of an eye, with volatility spiking dramatically.
These are the moments that traders live for or dread because they can quickly turn a good day into a bad one or vice versa.
High Impact News Events Example:
Here’s what you should keep an eye on:
Central Bank Decisions
When central banks like the Federal Reserve or the European Central Bank announce interest rate changes or tweak their monetary policy, the markets hang on every word.
Even a subtle change in tone or terminology can lead to major shifts in the markets.
GDP Reports
Think of Gross Domestic Product (GDP) as the economy’s report card.
A surprise in the GDP growth rate can jolt the markets, signaling either strength or weakness in the broader economy.
Traders often adjust their positions accordingly, especially when the numbers are different from expectations.
Inflation Data (CPI)
Inflation is another big news topic
When Consumer Price Index (CPI) data surprises to the upside or downside, it can fuel speculation about future interest rate moves, sending currencies and commodities on a rollercoaster.
Employment Data (NFP)
The U.S. Non-Farm Payrolls (NFP) economic news report is a monthly event that every trader marks on their calendar.
It provides a snapshot of the job market and sets the tone for market sentiment.
A strong or weak NFP release can dramatically shift expectations for economic growth and interest rates.
Geopolitical Events
Political surprises, such as unexpected election outcomes, wars, or sudden leadership changes, can send shockwaves through global markets.
Traders often flock to safe-haven assets like gold or the U.S. dollar during periods of uncertainty.
Examples include the market reactions to the onset of COVID-19 lockdowns, Russia’s invasion of Ukraine, and even the recent election results in America.
AUD/USD Daily Chart Covid Lockdowns:
See how an unexpected event like COVID-19 caused panic in the market?
These situations are rare but always extremely important to pay close attention to.
Let’s move on to medium-impact news.
Medium-Impact Economic News: The Steady Drummers
While these events may not cause immediate market fireworks, they still play an important role in shaping longer-term trends and overall sentiment.
Medium-impact news provides valuable context and trading opportunities for those paying attention.
Medium Impact News Events Example
Let’s look at some key examples:
Retail Sales Data
Retail sales give a snapshot of consumer spending, which is a major driver of economic growth.
Surprises in this data can shift market sentiment, especially if they signal changes in consumer confidence or spending habits.
PMI Reports (Business Confidence)
Purchasing Managers’ Index (PMI) reports offer an early glimpse into the health of the manufacturing and services sectors.
Strong PMI readings can boost market optimism, while weaker numbers may point to potential slowdowns.
Central Bank Speeches
Even outside formal policy decisions, speeches by central bank officials can move markets.
Some traders scrutinize their tone and word choices for hints about future monetary policy, making these events important for predicting shifts in market sentiment.
Trade Balance Reports
These economic news reports reveal the gap between a country’s exports and imports.
A narrowing trade deficit can signal improving economic conditions, while a widening deficit might raise red flags.
Although these reports often cause limited immediate market reaction, surprises can still shift long-term sentiment.
Why Medium-Impact News Matters
While you might not see dramatic moves on the charts unless something unexpected happens, medium-impact news may be something to pay attention to.
It helps reinforce the narrative set by high-impact events and can offer clues about their potential outcomes.
Observant traders use these reports to anticipate how markets might react to upcoming high-impact news, giving them an edge in making informed decisions.
So, look at medium-impact news more as a hint at what might come.
Low-Impact News: The Background Noise
Low-impact news might not send shockwaves through the markets, but it still serves a purpose.
While these events rarely trigger significant price movements, they add depth to your overall market analysis…
Low Impact News Events Example:
Here’s what fits into this category:
Consumer Sentiment Surveys:
These give you a feel for how optimistic or pessimistic people are about the economy.
While they’re unlikely to cause big moves, they’re helpful in predicting shifts in consumer behavior.
Construction and Housing Data:
Economic news reports like housing starts and building permits mainly affect niche sectors, like real estate or construction stocks, rather than the broader market.
Lesser-Known Indicators:
Data such as wholesale inventories or regional surveys may not make headlines but can still offer niche insights.
Although most traders don’t give low-impact news much attention, staying informed can still be advantageous.
These reports might not directly influence major market moves, but they provide subtle hints about overall market health and can help shape your trading bias.
In short, there’s no harm in keeping an eye on low-impact news it can serve as a useful supplement to your broader trading strategy.
Just remember not to overreact and overanalyze its results and not let it take up too much time and energy.
Why Does This Economic News Matter?
Okay Rayner, so there are news events that have different impacts on the market.
But how does that fit into my trading?
Well, understanding the impact levels of economic news allows you to prioritize and manage your focus.
High-impact news? That’s your time to shine. These are the events most likely to trigger significant market moves.
Medium-impact news provides valuable context, helping you gauge trends and prepare for future volatility and potentially giving insights into what high-impact news outcome is likely to be.
Meanwhile, low-impact news adds depth, offering niche insights without overwhelming your analysis.
It’s vital you acknowledge the differences between these categories so you can stay ahead of the curve, avoid unnecessary noise, and concentrate on the events that truly matter.
But how do you interpret this data in real time?
And more importantly, how do you determine whether the market will react strongly, mildly, or not at all?
Let’s take a deeper dive into how expectations and actual data impact the market.
Market Expectation
Why does high-impact news sometimes send markets into a frenzy while, at other times, it barely causes a ripple?
The answer lies in market expectations.
Before any significant economic data drops, analysts and economists put out their forecasts.
These predictions are essentially the market’s baseline:
- If inflation is expected to rise by 0.3%, traders price that in.
- If job growth is projected at 200,000 new jobs, markets adjust ahead.
In essence, the market braces itself for the “expected” scenario, which is why you’ll often hear the phrase “priced in.”
But here’s the catch: analysts don’t always get it right.
Market Reality
Once the actual data is released, traders compare it against those expectations, which is when the real action begins.
Let’s break down the three possible outcomes:
In Line with Expectations:
There is no shock here.
When the economic news data matches forecasts, the market often stays calm, with minimal price movements. Traders were already prepared for this, so there’s little need to adjust positions.
Better Than Expected:
This is what traders love.
Positive surprises, like stronger job growth or faster GDP expansion, often spark buying sprees.
You’ll see prices shoot up as market optimism surges.
Worse Than Expected:
Negative surprises, such as disappointing job numbers or higher-than-expected inflation, can trigger sell-offs.
Traders quickly adjust to the gloomier outlook, and prices often tumble.
Take this example, for instance:
Say the market expects 200,000 new jobs, but the report shows only 100,000.
That’s a big miss, and you might see stocks fall or currencies weaken as traders reassess their positions.
Volatility when actual economic news results are better or worse than expected can be extreme, which is why traders either embrace or avoid these moments, depending on their risk tolerance.
It’s worth mentioning the difference between scheduled and unpredictable news.
As shown above, some market turbulence can be predicted by noting the economic calendar and preparing for the key dates with risk management techniques.
However, some news can catch traders off guard, such as geopolitical tensions and natural disasters.
Next, it’s important to discuss how news affecting the USD impacts the rest of the market.
The Power of the USD: How It Moves Global Markets
The U.S. Dollar (USD) isn’t just any currency; it’s the heavyweight champion of global finance.
As the world’s most traded currency and the go-to reserve for central banks, its movements greatly affect global markets.
From currencies to commodities like oil and gold, it’s fair to say nothing comes close to the USD.
So when the U.S. releases major economic news data such as GDP growth, inflation figures, or employment stats, the entire financial world takes note.
A robust jobs report or a hawkish decision from the Federal Reserve can propel the dollar higher, setting off chain reactions in other markets.
Because many commodities are priced in USD, shifts in their value directly impact commodity-dependent currencies like the Canadian dollar (CAD) and the Australian dollar (AUD).
So, does every currency react to U.S. news? In a word: yes.
But the extent and nature of those reactions vary.
Let’s take a closer look.
How Other Currencies React
Currencies often take their cues from the USD.
Major Pairs
EUR/USD
As the most traded currency pair, EUR/USD is particularly sensitive to U.S. economic news releases.
Strong U.S. data typically leads to a stronger dollar, pushing this pair lower. Conversely, weak U.S. data or dovish Federal Reserve policies can cause the euro to rise against the dollar.
GBP/USD
While the pound reacts to U.K. news, it often responds even more sharply to U.S. data.
Events like Federal Reserve rate hikes or unexpected inflation figures can overshadow domestic factors, driving significant moves in this pair.
USD/JPY
This pair tells a unique story, as the yen is often seen as a safe-haven currency.
When U.S. data signals economic strength, USD/JPY tends to rise, reflecting risk-on sentiment.
But in times of global uncertainty, the yen gains strength, causing the pair to drop as traders seek safety.
Let me show you an example of this…
USD/JPY 4hr Chart Weakening USD/JPY as money shifts to the Yen:
Commodity-linked currencies like the Australian Dollar (AUD), New Zealand Dollar (NZD), and Canadian Dollar (CAD) also react to U.S. news, especially when it impacts commodity prices.
A strong dollar can weigh on these currencies by making exports like oil or metals more expensive.
Why This Matters for Economic News and Economic Calendars
Understanding the USD’s influence helps clarify why U.S. news is crucial, even for traders focused on non-dollar pairs.
High-impact U.S. events don’t just affect the dollar. They can shift sentiment across the entire financial ecosystem.
Whether you trade EUR/GBP, AUD/NZD, or even commodities, understanding how these events might trigger ripple effects is key.
That’s where economic calendars come in.
By highlighting major releases like Federal Reserve meetings or U.S. employment data, these tools help you anticipate when volatility could spike.
Spotting these events lets you stay ahead of market moves and position yourself accordingly.
With that in mind, let’s take a look at how to actively use news and calendars in your trading.
Risk Management: Navigating Market Storms During Economic News Events
Trading around economic news releases can feel like steering a ship through a sudden storm – thrilling but filled with danger!
Market volatility during these events can lead to rapid price swings, widened spreads, and unexpected gaps.
Without a clear risk management strategy, even experienced traders can face heavy losses.
In this section, let’s explore critical ways to safeguard your trading account during this high-stakes action.
How to Protect Yourself During News Events
Use Stop-Loss Orders:
Stop-loss orders are your first line of defence.
They automatically close your trade when the market moves against you by a predefined amount.
This can prevent small losses from snowballing into larger ones.
However, in fast-moving markets, slippage is a real concern, as your order might not execute at the exact level you set, especially during highly volatile news events.
To mitigate this:
Consider placing tighter stops if you’re trading smaller, more volatile assets.
You could also adjust stops and move them into profit areas if you’re already in a favorable trade, allowing you to secure gains while staying protected.
Reduce Position Sizes:
Scaling down your trade size is one of the simplest ways to limit risk.
If you know a major announcement is coming, reduce your exposure.
You could also consider taking some profits off the table to cover costs or lock in gains before the storm hits
Diversify Your Trades:
Avoid concentrating your risk by diversifying across different asset classes or currency pairs.
If one market moves against you, other uncorrelated positions might remain unaffected or offset losses.
Be mindful, however, that during extreme global events, correlations between assets can increase, so choose your diversification wisely.
Strategies to Avoid High-Risk News Periods
Sometimes, the best move is no move, especially during high-risk news events.
By knowing when to step back, you can protect your capital and avoid unnecessary stress.
Here are some strategies I use to help me stay safe when the market is primed for volatility
Check Economic Calendars:
Tools like Forex Factory, myfxbook, or TradingView provide detailed schedules of upcoming news events.
High-impact events are usually highlighted, giving a clear heads-up on when to tread carefully.
Close Positions Before Major Economic News:
If you’re not confident about handling the volatility, consider closing open positions beforehand.
This eliminates the risk of sudden price movements and allows you to reevaluate after the dust has settled.
Avoid Trading During the First Minutes of News Releases:
The moments immediately after a major release are often the most volatile.
Waiting for the initial dust to settle can help avoid impulsive trades and erratic price action.
Focus on Low and Medium-Impact News Periods:
If you prefer a more stable trading environment, stick to times when the market isn’t on edge over major announcements.
Adjust Your Trading Timeframe
Often, when trading on a higher timeframe, news events still can affect your trade, but generally with much less risk.
On higher timeframe setups, it’s common for stops to be wider, targets to be longer term, and news events to be a blip on the radar in the grand scheme.
Let me show you an example…
USD/JPY 5 Minute Chart Failed trade:
As you can see, a setup revealed itself for a simple support and resistance flip.
If this trade had been entered a few minutes before one of the most volatile high-impact news events, Non-Farm Payroll, this trade would’ve ended in a significant loss!
However, if you look at the higher timeframe, you’ll see something completely different…
USD/JPY 1 Hour Chart Zone Respected:
The lower 1-hour timeframe zone makes much more sense, and as you can see, as volatile as the NFP news event was, it still respected the zone.
Clearly, news events are much more volatile when viewed through the lower timeframe lens.
On higher timeframes, volatility tends to be less disruptive to trades planned around key levels.
With wider stop losses and profit targets, the impact of sudden market moves can often be minimized.
As such, if a major event is on the horizon and you’re in a higher timeframe trade, there’s usually less cause for concern, as your broader trade structure is not as likely to be affected.
Conclusion
Navigating market turbulence during high-impact economic news events can feel daunting, but with the right strategy and risk management techniques, it doesn’t have to be!
Successful traders don’t just react to market shifts; they plan and use proven tools to manage volatility and protect their capital.
In this article, you’ve:
- Explored the different types of economic news and their varying impacts on the market
- Learned how market expectations shape the initial response to economic data
- Gained a deeper understanding of how actual economic releases affect currency pairs and asset prices
- Discovered the crucial role the U.S. Dollar (USD) plays in global markets
- Identified key risk management tools like stop-loss orders, position sizing, and avoiding high-risk periods to safeguard your trades
By incorporating these insights and strategies into your trading plan, you’ll be able to handle the unpredictable nature of news events with confidence, turning potential pitfalls into profitable opportunities.
If you’re ready to take control of your trades and approach market news with a solid plan, now is the time to implement what you’ve learned.
And now – I’d love to hear from you!
How do you manage risk during high-impact news events?
What tools or strategies have helped you navigate market volatility?
Share your thoughts and experiences in the comments below!
