Economic reports appear to be among the most significant catalysts for short-term changes in any financial market, but it is especially true in the forex market, which not only responds to U.S. economic news as well as to news from all over the world. The foreign exchange is a 24 hours market and news from anywhere in the world can come at any time. The market moves based on economic data and news and can react any forex trader wherever he may be and whatever currencies pair he wants to trade.
For any fundamental analysis of price movement, the most important aspect is to consider the factors about which market players base their decisions. If you like to know the direction of exchange rates in the future, then you need to constantly check for foreign exchange data. Financial and political events have a strong effect on the economy, regardless of when such events happen. A political revolution would have an important effect on a particular country and its local currency. Which is why it will also affect all currency pairs linked to this country. And that sort of forex news is just what an experienced forex trader is going to use it.
Economic growth as a rule of thumb means future prosperity, which leads to improving the currency of the country. Market Traders are looking for these ups in economic growth (positive releases), as they typically give opportunities to move on an upward trend. By comparison, economic data showing a slack in economic growth which leads to the currency weakening of the country. Therefore, a currency’s future value is determined on the basis of whether the actual data reaches, fails or exceeds the predicted level.
Price activity typically follows very similar trends before a significant news event. First of all, uncertainty and momentum are always flat, and prices get worse. This occurs when forex traders and investors are unaware of the figures behind the data that is to come. Therefore, no new positions are taken and the price simply moves sideways. Occasionally, you can see unexpected increases in volatility, fairly small orders can have a significant effect on price movements when trading volume is weak. Therefore, if you see that your market is entering the sideways, it’s probably a pretty good idea not to enter any new trade positions in order to avoid getting stuck during those sudden spikes.