Special Events During a Calendar Year
The economic calendar is formed out of economic news that is released monthly and traders all over the world should be aware of their capacity to move markets. It is being said that technical analysis shows the direction the market is going to move, while fundamental analysis gives the reason for the move. However, not all events that are marked on the economic calendar are economic news. It so happens that from time to time market is focusing on something else rather than the economy. The fundamental analysis article we’ve covered here on the Forex Trading Academy is showing the type or other news we may expect, but the purpose of this article here is to list some of them and to briefly cover their importance. What needs to be considered here is that there is not a clear rule regarding how the market is going to move on such events. Because of this uncertainty, they are marked with the red color in the economic calendar and it means volatility will rise. Any piece of data that is marked with the red color is one that needs to be considered before opening a trade on the Forex market, and not only.
Events That Influence Trading
If you have a trading account, no matter if it is a demo or a live one, it is impossible to miss these events. The reason for this comes from the fact that the brokers are sending numerous emails highlighting the importance of the event, the fact that volatility is on the rise, and most likely the increase in margin requirements. This is a tricky statement as brokers are increasing margins for various reasons, and not all the times the logic is the correct one. However, they are right in the sense that volatility is on the rise and making sure there’s enough margin in the trading account is key for successful trading.
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Elections and Referendums
Every four or five years, political elections are taking place in all democracies. When this is happening in a top performing economy, markets are interested to know what the outcome is and how the business environment is going to chance. Election dates are being known in advance, and this means that market participants will prepare in advance for the event. However, it doesn’t mean that the actual move that the market will make on the event is going to be the one that it is expected. Perhaps the best example comes from the US presidential election that just took place this November. Markets knew an important event is going to impact rates and it all came down to two candidates, with two different economic agendas. The expectations were that if Mr. Trump is going to win the White House, this is going to be a risk-off event, with USDJPY, USDCHF, and equities around the world to move lower. The reason for such expectations was the fact that the political agenda or Mr. Trump was full of uncertainties, protectionism was favored, and this should have led to a risk aversion. As such, all pieces of information prior to the actual vote were showing the same market reaction: USDJPY has been bought on news that Trump is losing ground and the other way around. And then the vote came. While the initial reaction was the one expected, it only lasted for a few hours, as a massive rally started in the JPY pairs and in the US equities. Therefore, preparation for such important events is one thing, and actual trading is another one. Referendums play an important role in increasing market volatility as no-one knows what the outcome will be after such popular scrutiny, and, moreover, no one knows how the market will react to the outcome. Brexit vote is the classical example, and the upcoming Italian constitutional referendum is another one that comes to mind.
Fed’s Chairman/Chairwoman Semiannually Testimony
Part of the Fed’s Chairman/Chairwoman job is to testify two times a year, once in the Spring and another time in the Fall, in front of the Senate and the Economic Committee. The idea behind these testimonies is for the policymakers to scrutinize the state of the economy and trader have an idea about what the next steps for the US monetary policy will be. These testimonies are being held in the same week, and the biggest reaction is when the questions and answers session starts. While some questions may be known, no one knows the answer, so volatility is on the rise. The European counterparts used this as an example and now the President of the ECB (European Central Bank) is testifying in front of the European Parliament, following the same principle as the one explained earlier. Again, more transparency is the reason for these testimonies.
Other Important Events
Besides the above-mentioned events, there are other that influence markets as well. They are influencing different markets and the surprise element is the one that keeps traders awake considering these events. Jackson Hole summit is one of them. Central bankers from all over the world are gathering in the United States at a symposium hosted by the Federal Reserve and constantly are offering information about the ongoing discussions. It is not rare that important information comes out and markets move aggressively. OPEC meetings play an important role in the Forex market as well. The Canadian dollar pairs are reacting heavily to any changes in oil prices, oil output, and inventory levels. This makes the dates of these meetings events with the red color on the economic calendar, as the market reaction is as strong as a monetary policy event. The oil market, in general, is one that is being watched closely as the inventories data is released on a constant basis. News affecting oil production and levels are bringing increased volatility as well. To have an idea about the importance of such news, just imagine that the oil price fell from above $100 to below $30 in less than twelve months. Such an aggressive move brought extreme volatility on all markets, not only the Forex one. Unforeseeable events are the most difficult one to predict and trade, as, like the name suggests, these are surprises. The last one that comes to mind is the SNB (Swiss National Bank) dropping the 1.20 peg on the EURCHF cross. Such a move was coming as a total surprise and brokers as well as traders were suffering losses. Positioning for such events is tricky and both technical and fundamental analysis must be used before taking a position.
Other educational materials
- Composite Index
- Toronto Stock Exchange (TSX)
- Other Economic Releases to Watch
- Macroeconomics in Forex Trading
- Geopolitical Risks That Influence Markets
- Different Trading Styles