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How to Interpret the news
One must note that when looking at the economic calendar it is important to remember that the current price already reflects the expected results. Even though Fundamental analysis is essential in determining currency pair’s movement, there are however, additional factors that are important to take into consideration when trading the financial markets.
One of those factors is “expectations”
As stated above expectations are formed prior to the release of fundamental data. If for example the U.S inflation figure (CPI) came out at 1.2% from 1% in the previous month, then the Dollar may not necessarily rally, even if you expect it to. If the market was expecting a 1.5% inflation figure, then the 1% reading might come as a disappointment to certain traders, causing a different reaction from the one you were expecting.
Trading Tip – Each Sunday before the trading week starts, take a look at the economic calendar and prepare your weekly trades. If the calendar is packed with data from the country’s currency that you wish to trade or already trading, then make sure you know what data is coming out and how it can affect the market.
If a wave of data is expected to be released, but doesn’t affect the pair that you are trading on, then you have nothing to worry about. Just remember that correlations in the FX market are not 100%. This means that sometimes data from different economies will have an effect on the pair that you are trading.
What happens if the result comes out higher than expected?
If you recall we mentioned before that the price of the currency pair always reflects traders’ expectations or in other words, expectations are always baked into the markets price, prior to the release of the result. If for example the U.S inflation figure increased by 1.8% compared to the expected 1.5%, then it will cause dramatic movement on the currency pair as it deviates from the expected result.
If for example the figure came out from the U.S then the Dollar could rally higher.
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