Most of Forex news comes from the economic sphere. Job-related data, changes in the size of an economy, inflation, etc., offer traders clues about the economic performance of a region or country. Traders put the economic news together to find out the shape of an economy. Thus, the shape of a currency.
With its almost six trillion dollars daily turnover, the Forex market depends on Forex news to move.
Forex trading means buying and selling currency pairs. Hence, traders compare to economies for every currency pair.
It doesn't mean Forex traders need an economic background. Merely, it means looking at the major economies around the world, like: United States of America, Eurozone, Japan, Australia, Canada, United Kingdom, Switzerland, etc.
Now imagine that each economy has a currency:
- S. Dollar (USD)
- Euro (EUR)
- Yen (JPY)
- Australian Dollar (AUD)
- Canadian Dollar (CAD)
- British Pound (GBP)
- Swiss Franc (CHF)
Any discussion about Forex volatility and what causes it starts with the USD. As the world's reserve currency, it influences the entire Forex dashboard like no other currency.
Because of the dollar, the currency pairs form two categories: majors and crosses. Any major pair has the USD in its componence. Hence, a major don't. Only by splitting the pairs in such a simple manner, traders can avoid Forex volatility surrounding critical economic events. For example, one way to prevent wild swings in the trading account is to trade cross pairs during American Forex news.
After the Bretton Woods conference, the USD became the pillar of the world's financial system. Moreover, the Nixon shock in 1970's decoupled it from the gold standard. From that moment, it was only a matter of trust in the USD that kept foreign investors buying it.
The most important and relevant
The Forex calendar news out of the United States is one of the busiest of them all. Because of the dollar's role, every market depends on the shape of the US economy. More over, the Intermarket correlation means the dollar will move not only the Forex market but also other markets like bonds, stocks, options, and so on. Hence, it is all about interpreting the economic news.
For a currency, it is all about the interest rate level. Hence, the Federal Reserve interest rate announcement and press conferences move the dollar. And, the Forex market. The Fed meets every six weeks. On a Wednesday, right after the London's close, the Fed releases the FOMC (Federal Open Market Committee) Statement. This is a text describing the monetary policy. Trading algorithms or robots scan the document with lightspeed and react.