The Importance of Fundamental News in Forex Trading

Currently, forex trading has become a serious business with the largest capital turnover in the world. Like other serious businesses, participants must always keep up with market conditions over time. Professional forex traders always apply a combination of fundamental and technical analysis to determine the right time to open positions or exit the market.

Fundamental analysis provides information about the causes of market price movements, while technical analysis explains the effects of price movements. Regardless of the classic debate about which is superior, those who want to be serious in forex trading should always pay attention to and follow economic events and fundamental news releases as one of the references in their trading strategy.

The Importance of Economic Indicators for Forex Traders

The currency of a country is an icon that represents that country, and the health of that country's economy is reflected in the value of its currency. Economic indicators are measures that indicate the health of an economic system. It is important for traders to always follow the developments of global economic events that significantly influence the forex market, in addition to paying attention to the release schedule of several indicators considered important by market participants. There are many sites as references that provide real-time release schedules of fundamental data with details of currencies and release times, complete with analysts' predictions (forecast or consensus) and previous release data as a reference.

Why are some economic indicators more important than others?

The current market conditions will influence which fundamental news will be most responded to by the market and, of course, which economic indicators will have the most impact. For example, when the United States is experiencing a significant trade deficit, market participants will pay attention to trade balance data. News releases regarding this will cause large trading volumes and price movements.

When the U.S. economy is growing rapidly with high labor data indicators, the market does not focus on unemployment data. The economic conditions of a country can change at any moment. A large trade deficit in the United States can weaken the US dollar, and if the US dollar is weak, market participants will shift their attention to inflation rates by monitoring CPI data releases to anticipate the interest rate decisions made by The Fed.
Generally, the economic indicators that currently attract market attention are those related to interest rates, inflation, labor data, and economic growth.

Is it important to compare actual data releases with consensus (forecast)?

Actual data releases are the results of newly released data, and consensus, often referred to as forecast, is the prediction from analysts who are also market participants, and can be considered the market's expectations about the news. The actual data release results themselves are not that important; what matters is whether the results align with market expectations. If there is a significant discrepancy between the actual data released and what the market expected, prices will move with considerable volatility.

For example, if the previous CPI data was 0.2%, then an actual data release at 0.3% is very significant if we know the market expected this month's CPI data to be at 0.1%. Depending on the trading method and strategy, we can enter the market just before the news release (with a pending order), or shortly after the news release.

Opening a position right at the time of the news release is risky because, in addition to the difficulty of entering due to the high number of online users, slippage or price jumps often occur, causing the price we obtain to deviate from what we wanted. To see the long-term impact of a news release that does not meet market expectations, traders usually wait about 30 minutes after the news release. Similarly, for traders who avoid opening positions during news releases.

Why must technical traders (chartists) pay attention to fundamental news releases?

Technical analysis will not work if fundamental factors are the main focus of market participants. The market becomes sensitive to the developments of fundamental news that are currently an issue. With the motivation to obtain considerable profit and somewhat speculative in nature, traders usually enter the market at the time of the non-farm payrolls news release from the United States and the announcement of interest rates by The Fed or BoE.
At the time of these news releases, the market tends to no longer adhere to technical analysis rules. The mass speculation that occurs makes traders strive to get the best price to open trading positions rather than looking at the positions of moving average indicators or stochastic oscillators.