Undoubtedly, although pure technical analysts do not want to recognize it, the important economic news and announcements have a profound impact on the market. In some occasions it is only through such data that can be understood sudden rises and drops in the major currency pairs. For this reason it is always important to be aware of the major economic events worldwide, in order to take advantage of an opportunity or avoid a sudden market movement against us.
For this, we can make use of an economic calendar Forex, which are offered free by some of the leading Forex brokers. However, for this tool to be useful we must learn to read and interpret it properly, for which we include a small guide below:
-Factor´s impact: Generally, the economic calendar include a column which indicates or suggests how much influence can have a certain economic data on the market development.
It is important to know the exact moment when important news will have real impact on a particular currency pair, so that we can enter the market on time or get out of it before it turns against us.
Usually, when the news are released the market becomes more volatile, which may also occur hours before because of the expectations of investors. The strength of this volatility depends on what is known as the “surprise factor” that bring the news, especially in relation to forecasts. This factor can be defined as the level of the unexpected, where traders compare the expert forecast about any economic news with current data recently released. The greater the difference between the actual data and the forecast the greater the impact on the market.
Economic data of medium impact must also be taken into account in case the surprise factor is high. Low-impact data generally do not have much effect on the prices in the currency market.
-Previous results: This column includes the previous data of different economic indicators in order to compare these values with the current data and the forecast.
-Forecast: Virtually all economic calendars include a column with forecasts on various economic data. These forecasts are made by economic experts who try to predict what value will have an specific economic indicator when the news is given to know.
-Current value: This column displays the current value of the economic indicators and is updated until the news is released. At the precise moment when this happens, the current value is compared with the forecast and depending on the overall positivity or negativity of the economic news for a given currency, together with the “surprise factor“, it can cause the price up or down in seconds. For example, if the news indicates a contraction in the European economy, it is almost certainly that the price of the euro will fall against currencies like the dollar
The impact of economic news, which causes an increase in market volatility, is characterized by a period of 1-3 minutes of high volatility and a period of 5-10 minutes where the market experienced a corrective/adaptive volatility.