What Makes Forex News Actionable?

Why News is Actionable

News becomes actionable because it can be used to spot good trades. With each economic report, there is usually an expected outcome for the market.

To give an example, the market may expect that retail sales figures will show a 1% increase for the past month.

Three outcomes

If this expectation proves to be true, the market may be quiet.

If the results come in better than expectations, then it’s likely that the underlying currency will rise. A better than expected report shows that consumers were able to buy more than expected, likely because of an improving economy.

If the results prove to be worse than expectations, watch out! The currency that is represented in the pair is soon to lose value, as the economy didn’t perform up to expectations.

The Consensus

Economists and analysts who work for different firms try to predict how a report will play out. Known as “the consensus” or “consensus expectations,” reporters, the media, and traders average all the different guesstimates from various firms to come up with an average. This becomes the consensus, or expected result.

You’ve likely heard before that news can be “priced into the market.” When the market starts expecting something, it “prices it into the market.” Thus, if traders expect that retail sales will rise by 1% this year, then they see an improving economy for the United States, and start paying more for the dollar. When the news comes in, traders scramble to reassess their reasons for making a certain trade, or re-engineer their analyses for different currencies.

The Frenzy

Shortly before and after any news release traders can expect a frenzy of trading activity. Everyone comes to the table to start making new bets about the release, or to close old wagers ahead of the release. It’s as if you took everyone in a Casino to one craps table to place all of their bets for that night.

We’re going to talk more about the frenzy of the foreign exchange markets in the next section on how to trade the news