How Consensus News Forecasts Affect the Forex Market
Unfortunately, there is no direct way that you can always play the market depending on what kind of news comes out. This is to say that as much as you might like to have an easy go-to for how to react to the market based on a piece of news that comes out, you cannot necessarily bet heavily in one direction or the other every time based on the type of news that comes out.
Typically, there will be a strong move in one direction or the other based on the news that comes out and the underlying currencies that are involved. That said, the movement will generally be very short-lived.
You can’t necessarily predict how long the movement will last or in which direction it is going to move in.
After the initial reaction to the news, there is generally a secondary reaction that occurs after traders have had a little time to absorb the news and figure out where they want to go with the news that has come out.
When the secondary reaction comes, that is when the market will decide if the news that has arrived is what was expected or not. In other words, the market will react to the news and then send the currency value in the correct corresponding direction.
What are Consensus Market Expectations?
This term is exactly what it sounds like. The consensus of the people who trade in the market.
If the news matches up with what they were expecting to happen, then the market is not likely to move as violently for a long period of time after the news comes out. This is to say that the market will absorb the news that has come out and will ultimately decide where it wants to carry the currency next.
The consensus is formed by all of the opinion makers and experts in the market. When all of those opinions are brought together, it will begin to form a consensus opinion about what the news should look like in the market. The market will pull all of the data that is presented by all of the people with a genuine stake in the market.
That consensus becomes the baseline against which the actual news is judged.
The data will then be evaluated in one of three ways:
- As Expected – The news came in at or close to the consensus numbers that the market had in mind
- Better-than-expected – The news is more encouraging than the consensus had expected
- Worse-than-expected – The news was less encouraging than the consensus had expected
The determination of what has happened in the news compared to what the expectation was can have a major impact on what the market does in terms of reacting to the news.
The bigger the miss was on the consensus versus the reality, the bigger the potential for a large market to move in one direction or another.
What Does it Mean if the News is Priced In?
It is not as though the market will always react the way that it is “supposed” to in terms of the news that has arrived. There are certainly situations when the market will move wildly in the opposite direction from what one might have expected when they were considering what was priced into the market.
The market will try to get ahead of the news, ahead of the consensus, and figure out what needs to be done to make their trades accurately and with the foresight that they need to be a profitable trader.
It is not easy to necessarily tell what the market is thinking about the current news or situation. You will need to spend some time trying to figure it out by looking at what the market is doing to price in certain aspects of what could happen in the news before that news arrives.
Every trader is trying to do the same thing. Everyone wants to try to figure out what is going to happen in the market before it is actually happening. That is why you should pay extra close attention to what the market is doing before the news comes out.
These movements are known as market sentiment, and these movements are incredibly important to pay attention to when you are looking at what the market is doing in the lead-up to the release of real data in the news.
The best traders in the world are still only able to predict the movements of the market accurately some of the time. Don’t become too concerned if you have some losing trades. Every trader will have losing trades.
However, you can do much better for yourself if you are willing to look at what the market sentiment looks like and how you may be able to profit from what the market does when the real data comes out.
If you want to learn more about Trading on News and Data, join us in our Trading Club.
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