Gabe Velázquez
Online Trading Academy
We humans have a burning desire to always know why things happen. Curiosity is an innate quality that most of us possess and in some respect, this is a great attribute. This inquisitiveness has led to wonderful advances and new discoveries in the fields of medicine, science and technology. It’s also what makes life fun and interesting. It can also be an entertaining endeavor when it comes to the financial markets. Trying to figure out (after the fact) why a market reacted a certain way satisfies our need to know, but doesn’t necessarily makes profitable traders. What do I mean by this?
Just tune in to any of the financial news stations and listen to all the punditry and analysis that goes on from folks that rarely make money from trading. These folks make their salaries from disseminating information that quite often has already been priced into the markets. The primary job of the financial news media is to inform us of why the market moved and then extrapolate other ramifications so that the audience stays tuned in. Pundits espouse their views of where the market is likely to go next and are no better than random in their accuracy.
So, can we trade in a news vacuum? In the sense that news is noise that tends to cloud our judgment, yes. That said, a trader should know when the news will be released, but not for the reasons you might think. We shouldn’t concern ourselves with the consensus views or what the numbers released tell us about the economy or any of that stuff. The instantaneous reaction of markets makes it almost impossible to predict in what direction the market will move after the release. Furthermore, reacting after the financial news will always lead us to chase price, resulting in a high-risk trade.
Instead, we should look at the news as an opportunity to engage the market in a low-risk manner. For one, we know the markets spike immediately after the financial news is released. This is a strong move that generally pushes the market into supply or demand. And unlike the conventional wisdom of buying after good news, or selling after bad news, we will take the opposite side of those trades.
In most cases, positive news pushes prices higher, getting the novice to chase, buying into a level where we can find objective supply. Conversely, gloomy news sets off a spate of selling into levels where institutions are willing buyers.
A recent example of this was last month’s Non-Farm Payroll release. As we can see from the 30-year T-Bond contract below, the initial reaction to the report was positive which induced the novice trader to buy right into an area where institutions were sellers (highlighted in yellow).
The number was a disappointment. The economy created 148,000 new jobs less than the consensus of many Wall Street Economists. The initial rally was caused because of the perception that a potential slower economy would lead to lower interest rates. But as we can see, that was the absolute wrong trade to make as Bonds embarked on a steep selloff.
The lesson here is the actual content of the news is to be ignored, but knowing when the financial news is to be released is important as this uncovers the illusion and the opportunity. Do you know which is which?
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Editors’ Picks
EUR/USD hits two-day highs near 1.1820
EUR/USD picks up pace and reaches two-day tops around 1.1820 at the end of the week. The pair’s move higher comes on the back of renewed weakness in the US Dollar amid growing talk that the Fed could deliver an interest rate cut as early as March. On the docket, the flash US Consumer Sentiment improves to 57.3 in February.
GBP/USD reclaims 1.3600 and above
GBP/USD reverses two straight days of losses, surpassing the key 1.3600 yardstick on Friday. Cable’s rebound comes as the Greenback slips away from two-week highs in response to some profit-taking mood and speculation of Fed rate cuts. In addition, hawkish comments from the BoE’s Pill are also collaborating with the quid’s improvement.
USD/JPY drops back below 157.00, as focus shifts to Japan snap election
USD/JPY is back in the red below 157.00 in the Asian session on Friday. The Japanese Yen recovers ground against the US Dollar amid some profit-taking ahead of Japan's snap general election on Sunday. The preliminary reading of the Michigan Consumer Sentiment Index report for February will be released later on Friday.
Editors’ Picks
EUR/USD: US Dollar to remain pressured until uncertainty fog dissipates Premium
The EUR/USD pair lost additional ground in the first week of February, settling at around 1.1820. The reversal lost momentum after the pair peaked at 1.2082 in January, its highest since mid-2021.
Gold: Volatility persists in commodity space Premium
After losing more than 8% to end the previous week, Gold (XAU/USD) remained under heavy selling pressure on Monday and dropped toward $4,400. Although XAU/USD staged a decisive rebound afterward, it failed to stabilize above $5,000.
GBP/USD: Pound Sterling tests key support ahead of a big week Premium
The Pound Sterling (GBP) changed course against the US Dollar (USD), with GBP/USD giving up nearly 200 pips in a dramatic correction.
Bitcoin: The worst may be behind us
Bitcoin (BTC) price recovers slightly, trading at $65,000 at the time of writing on Friday, after reaching a low of $60,000 during the early Asian trading session. The Crypto King remained under pressure so far this week, posting three consecutive weeks of losses exceeding 30%.
Three scenarios for Japanese Yen ahead of snap election Premium
The latest polls point to a dominant win for the ruling bloc at the upcoming Japanese snap election. The larger Sanae Takaichi’s mandate, the more investors fear faster implementation of tax cuts and spending plans.
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