Trading the News – EURUSD and GBPUSD Day Trades

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Trading GBP/USD

The British pound/US dollar pair is one of the most liquid currency trades in the forex space. The tight bid-ask spreads, volume and volatility, all ensure the popularity of day trading the GBP/USD is only set to rise. This page will break down everything you need to know, from the history of the GBP/USD pair to its benefits and risks. Strategies will then be offered, including technical analysis, trading hours, plus forecasts for 2020.

GBP/USD Trading Brokers

Chart

Why Day Trade GBP/USD?

There are a number of reasons why thousands of people everyday head online to day trade the GBP/USD. Some of biggest benefits are detailed below.

  • Volatility – You will often find a wider price range with GBP/USD compared to other major pairs. This is in part due to unpredictability and volatility. Both of which result in higher spread quotes from forex brokers.
  • Relative safety – As two of the most modern economies in the world, the GBP/USD offers a multitude of resources for finding price information and data. It is thought approximately 35% of the volume traded in the FX markets goes through London. This means volume and volatility, both of which can be used to turn profits.
  • Diverse trading vehicles – The GBP/USD is one of the most liquid, cash rick currency pairs available. GBP/USD is the third most traded major currency pair, consisting of around 14% total daily trading volume. All of this means a range of trading vehicles and opportunities are available to switched on day traders.
  • Manoeuvrability – Those day trading the GBP/USD will benefit from a sizeable number of pips in a single move when compared to other major pairs. This makes it ideal for breakout trading. However, this does also bring with it risk, so utilising stop losses is important.
  • Availability of resources – In certain respects, conducting technical analysis is easier today than ever before. This is because you have graph history, long-term charts and 1-minute data just a few clicks away. Also, news resources and trading forums will offer predictions for today and long-term forecasts.

Drawbacks/Risks

Whilst trading GBP/USD forex appeals for a number of reasons, there are also certain risks to be aware of:

  • Rapid movement – The GBP/USD can move extremely quickly. Whilst this is great for fast, decisive traders, it also means you can lose money quickly. To counter this you need to be disciplined, employing effective risk and money management strategies.
  • Report heavy -If you were hoping to enter and exit positions based on straightforward information, such as closing prices and average daily ranges, you may be disappointed. This is because the cable often responds significantly to UK economic reports, especially when data does not marry with monetary policy speculation and expectations.
  • Ambiguity – The volatility of the GBP/USD often results in false signals and false breakouts. This means traders with less experience may fall victim to misleading signals. Some may argue that beginners should instead focus their attention on other currency pairs.
  • Automated competition – Even with competitive 1 month and yearly forward rates, today you face a serious challenge. This is because the markets are dominated by an increasing number of intelligent trading algorithms. As a result, you now need more than weekly forecasts and yearly charts to assert an edge.

So, day trading the EUR/USD may offer plenty of profit potential, but it does have its drawbacks. Those investing in the currency pair should be aware of both sides of the coin before they risk their capital.

Influences on Movement

As you have probably gathered without the use of GBP/USD 20-year, 50-year, and 100-year charts, several factors shape market sentiment and prices.

The most influential of which are as follows:

  • Economic growth – When the US economy is looking stronger than the UK’s, the dollar usually rises against the pound. Likewise, when the UK economy outperforms the US’, the dollar normally weakens vs the pound. Interest rates, labour productivity, and increased investment can all boost growth.
  • Political events – As seen with the Brexit decision detailed above, political decisions can trigger movement in the GBP/USD currency pairing. Major elections, for example, can have a noticeable impact.
  • Monetary policy – As seen in the early history of this major currency pair, the actions of the Fed and BoE can seriously influence rates. So, keeping abreast of economic announcements and major decisions could help you assert a competitive edge.

Currency Correlations

What may not be clear on your GBP/USD real-time chart is the impact of ‘currency correlations.’ This may just be a phrase you have come across in forums. Here is a breakdown:

Because currencies are priced and traded in pairs, no single pair is totally independent of other pairs. For example, if you are trading the British pound against the Japanese yen (GBP/JPY), in reality, you are trading a derivative of the GBP/USD and USD/JPY pairs. This means that to some extent, GBP/JPY has to be related to either or both of the other currency pairs.

But whilst some will move in line with each other, others will move in the opposite direction. Once you realise this, you can begin to use this information to your advantage.

Calculation

It is best to think of correlation as a statical measure of the relationship between currency pairings. This correlation can range from -1 to +1. The former suggests the currency pairs will move in opposite direction, whilst the latter suggests they will move in the same direction. If the correlation is zero, the relationship is arbitrary.

The most efficient way to get your head around currency correlations is to calculate them yourself. Fortunately, it is relatively straightforward. An Excel spreadsheet will be your calculator, as you can use the correlation function (=CORREL).

Once you have that, do the following:

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  • Input pricing data for your two currency pairs, for example, GBP/USD and EUR/USD.
  • Create two individual columns, each titled with one of the pairs.
  • Now fill the columns with the past daily prices over the time period you are using.
  • In an empty box at the bottom, type in =CORREL.
  • If you highlight all the data in one of the columns, you will get a range of cells in the formula box.
  • Then simply type in a comma.
  • Follow steps 3-5 for the other currency.
  • Now close the formula. It should then look like =CORREL (A1: A25, B1: B25)
  • The final figure you get is the correlation between the two currency pairs.

It’s also worth bearing in mind, over time correlations can change. This can be as a result of monetary policy, plus economic and political factors.

Day Trading GBP/USD Strategy

Whatever your trading plan, whether it relies on weekly pivots and analysis, or historical data in Excel and 5-year averages, all the points and examples of strategy below can be of use.

Timing

There is a common misconception when day trading GBP/USD, that because the forex market is open 24-hours a day, you should be tuned in to your trading platform buying and selling all day. This is simply not the case.

Successful day traders will hone in on times when there is enough volatility and volume to generate earnings greater than the cost of the spread and/or commission.

You will see spreads widen during relatively quiet periods and narrow during busy periods. So, although the GBP trades from Sunday evening through to Friday afternoon in the US, opt for specific time periods.

The prime window is when the markets are open in both the UK and the US. Therefore, the best time to day trade the GBP/USD is between 08:00 and 10:00 GMT, plus 12:00 and 15:00 GMT. Here you will find the biggest daily moves and the spreads will have a reduced influence on profit.

So, whatever your technique for identifying support and resistance levels, plus other signals, trading during the most active periods can often yield the greatest profit potential.

Trading Breakouts Strategy

There is ample opportunity to day trade breakouts with the GBP/USD currency pairing. However, you need to look for solid risk-reward ratios. For example, risking 25 pips, but aiming for 100 pips if correct.

Opt for an aggressive 1:4 risk/reward ratio as above, and you can be right far less. On top of that, don’t risk too much capital per trade. Many suggest risking no more than 1-2% of your account balance on a single trade. That way you will protect yourself from losses and ensure you live to fight another forex day.

Trading News

There is an alternative for those who are less interested in day trading GBP/USD with 15-minute, 1-hour charts, and technical forecasts. Instead, you can trade on today’s news. This page has covered many of the factors that influence the GBP/USD. You just need to stay tuned in and have a plan in place.

For example, economic reports on UK unemployment rate, manufacturing growth, consumer sentiment, and spending, will all trigger movement.

Google Finance, Yahoo Finance, DailyFX, and Bloomberg, all provide live forex news updates. If you can react before the rest of the market, you may be able to assert an edge. They also offer all the GBP/USD rates, forecasts and commentary you need to evaluate your positions.

In addition, whether your strategy revolves around wave counts via Elliot wave analysis, or breakout strategies, getting the latest forecasts, for this week and next week will all put you in a stronger position. Many of the news sources mentioned above provide excellent services to this end.

Forecasts

Long term forecasts can often provide a strategy or at least single trades. Major users of the forex markets are using the same long term forecasts and economic outlook predictions. So governments or major corporations exchanging currency are doing so based on the same price movement expectations. This can often lead to self fulfilling forecasts as those larger trades are either all being held, or all being pushed through.

One word of caution here though, is that as ever, too much reliability is assumed on economic experts. If their predictions were ever properly recorded and tested, they may not be quite as reliable as is assumed.

4-hour GBP/USD Strategy

You will need to view both a 4-hour and daily chart. Both timeframes will be used to make decisions. The daily time frame you will use to identify the main trend. The 4-hour timeframe will be for entering your trades.

You will need two forex indicators:

1. Use a slow stochastic indicator with the following (13, 5, 5) settings applied to both charts.
2. Also, use an exponential moving average 4, EMA 14, and EMA 50 on the 4-hour chart.

Selling Rules

  • Once the 4 EMA crosses 50 EMA, followed by 14 EMA to the downside on your 4-hour chart, then place a sell trade at market order. Alternatively, place a pending sell stop order on the opening of the new candlestick.
  • Enter a stop loss at 50 pips.
  • Profit can be taken at 150 pips, which is three times what you risked.

Buying Rules

  • Once 4 EMA crosses 50 EMA, followed by 14 EMA to the upside on your 4-hour chart, place a buy trade at market order. Alternatively, place a pending buy stop order where the new candlestick opens.
  • Again, place a stop loss at 50 pips.
  • Profit can be taken at 150 pips.

The benefits of this GBP/USD strategy are obvious. If the trend today is strong you’ll make a decent number of pips. Plus, because you enter the trend on or just after the exponential moving average crossover takes place, you enter as the trend starts and not halfway through.

For more guidance, see our strategy page.

History

Early Days

To effectively day trade on the GBP/USD, also known as the ‘cable’ (after the transatlantic cable laid between the two nations), it helps to understand their turbulent relationship.

Trade has existed between the two currencies for so long, there is no way to put forward an original pound dollar exchange rate. It wasn’t until the early 1970s that the concept of the GBP/USD we know today really existed. Change was brought around by the transition to floating exchange rates by both the US and UK.

Before 1971, foreign exchange rate history was tied to the value of gold. This was a result of agreements reached in 1944 at the Bretton Woods Conference. The effects of which, would have implications on the GBP/USD for nearly three decades.

With the demise of Bretton Woods, the GBP/USD conversion history began a more dynamic relationship. The 1980s saw substantial price movement between the pair. These fluctuations can be attributed to several events that occurred in 1985:

  • British scientists in the Antarctic uncovered a hole in the ozone layer.
  • The first mobile phone call in Britain was made.
  • Miners’ ended their strikes.

Impact

The effect of all this – GBP/USD sunk from 2.44 to 1.05, the lowest historical exchange rate recorded for the pair.

Understanding why these price movements took place, may help you better understand the forces that influence the GBP/USD, enhancing future investing. So, what went on in the US?

  • The 1970s brought with it the rise of Organisation of Petroleum Exporting Countries (OPEC) and oil prices. However, at the same time, a shortage of oil restricted economic output.
  • The 1980s kicked off following an extended state of unease in the US economy.
  • Following the Vietnam war, unemployment rates were high. This was coupled with the Federal Reserve System (Fed) failing to introduce measures to ease rising inflation.

The impact of the success in Britain and shortcomings in the US was felt in exchange rates. As you can imagine, the GBP strengthened against the US dollar.

Status quo, however, was re-established with the introduction of Reaganomics. One of the key changes was high-interest rates to combat inflation. The tax cuts and military investment that followed, soon saw the US economy booming once again.

The effect of all this on the GBP/USD was significant. By the time 1985 rolled around, the US dollar has risen 50% against leading currencies.

1990s Intervention

Another important period in the historical GBP/USD relationship came in the early 1990s. The Bank of England’s (BoE) intervention created one of the most significant moves ever witnessed in the pair’s history.

The BoE propped up the value of the sterling in an attempt to maintain the pound’s value against the German Deutschmark as part of the Exchange Rate Mechanism (ERM). The problem was, the UK was in a recession and rising interest rates were an inadequate monetary measure.

It wasn’t long before the likes of George Soros noticed the BoE were in an unattainable position. His response – short the pound.

Black Wednesday came on the 16th September 1992, where Britain left the ERM and abandoned hopes of supporting the pound. In just one day the pound dropped a staggering 25% in value against the dollar.

This all helps emphasise the use historical facts and data can have on future GBP/USD outlook and forecasts.

2007 Crisis

The next important event in the GBP/USD relationship rolled around in 2008-2009. But before the 2008-2009 global depression, the sub-prime crisis took place. By summer of 2007, it was apparent a number of major US financial institutions were in serious trouble.

However, because the global implications were not yet totally understood, the GBP actually rose against the US dollar for most of 2007, as a result of the apparently flailing US economy. By November 2007, the GBP/USD stood at 2.1163.

Once the BoE fully comprehended the extent of the damage, it started to make significant changes from 2008. The key events in the GBP/USD timeline were as follows:

  • 8th October 2008 – BoE cuts its bank rate by 50 basis points to 4.5%.
  • 6th November 2008 – BoE cuts the bank rate by an additional 150 basis points, down to 3.0%.
  • 4th December 2008 – BoE slashed the bank rate by 100 basis points to 2.0%.
  • 8th January 2009 – BoE reduced the bank rate by 50 basis points to 1.5%.
  • 5th February 2009 – BoE again cuts the bank rate, by another 50 basis points to 1.5%.
  • 5th March 2009 – BoE creates a record low by cutting the bank rate by 50 basis points down to 0.5%, and then announces quantitive easing (QE).

These events demonstrate the potential effects of monetary policy on the strength of a currency. This knowledge could allow you to more accurately forecast and react to future events.

Brexit

Another significant milestone came with the 2020 Brexit decision. The GBP/USD exchange rates and prices quickly shifted. The value of the pound sunk against the US dollar and other major currencies.

Against the US dollar, the pound fell from $1.466 to $1.3694 when the result was announced, and then dropped to $1.2232 by October 2020, a fall of 16%. Having said that, by the middle of 2020, the pound had somewhat stabilised. Although it is still too early to know the long-term impact on the GBP the decision will have.

Understanding how events are influencing trading on your GBP/USD forex index system will prove useful. Quite simply, whether you are based in the UK, US, Europe, or elsewhere, having the context will make those live trading rates make far more sense.

Role of Great British Pound

Despite the UK’s size, its economy is up there with some of the biggest in the world. As such, it plays an important part in international financial markets and London is considered the capital of the forex world.

In fact, for over a century, the UK was the global powerhouse, with the largest economy. At this time, the British pound was considered the world’s unofficial reserve currency. However, the world wars triggered a relative decline in the UK, whilst the US was blossoming into the world’s most dominant economic power.

Heavy government regulations and restricted labour markets also took its toll on the UK economy. Since then, the economy has stabilised, in part due to the emergence of London as a global financial hub. It also helps that the UK is the second largest producer of oil and gas in Europe after Norway.

What does all this mean for those interested in GBP/USD investing? It means an abundance of trade opportunities every day, in a highly competitive and volatile market.

Role of US Dollar

A fundamental part of GBP/USD trading economics is understanding the crucial role the US dollar plays. It is of great importance for the following reasons:

  • It is considered the world’s reserve currency and used to settle a huge portion of international transactions.
  • Some smaller countries peg their own currency’s value to that of the US dollar.
  • It is the world’s second-largest trading nation after China.
  • Huge global banks will hold a substantial percentage of currency reserves in US dollar.
  • The live price of gold and other popularly traded commodities are often set in US dollars.
  • OPEC conducts transactions in US dollars.
  • It is the most prevalent currency in popular pairs.
  • The US is a major world player in petroleum, automobile production, aerospace, construction, electronics, telecommunications, plus construction and agricultural machinery.

FX day traders, therefore, need to understand what influences the US economy to be able to forecast in which direction the US dollar will go. Once you understand which factors to take into consideration, you then need to go about keeping abreast of them.

To do that, you should consider the following economic indicators:

  • Consumer Price Index
  • Producer Price Index
  • Trade Balance
  • ISM Non-Manufacturing
  • ISM Manufacturing
  • Federal Reserve Minutes
  • Retail Sales
  • Industrial Production
  • Non-farm payrolls

Final Word

As two of the most widely traded currencies in the world, the GBP/USD currency pairing attracts day traders from all over the world. Narrow bid-ask spreads and a generous choice of trading vehicles, including futures and options, will continue to reel in aspiring traders.

However, to profit in the crowded forex market you will need to find an edge.Live chart investing is never straightforward. So, day trading during specific periods and utilising volume will allow you to bring meaning to price fluctuations. Using signals and trends will also help you spot promising financial opportunities.

If you can do all that, whilst overcoming the numerous risks, you may be taking the first step to joining the likes of successful forex traders, such as Micheal Marcus and Paul Tudor Jones.

You may also want to see our forex page for further guidance.

EUR/USD News (Euro US Dollar)

EUR/USD is recovering amid a better market mood

EUR/USD is trading closer to 1.09, recovering amid a better market mood. Earlier, the eurozone finance minister failed to agree on a joint economic response to coronavirus =.

Latest EURUSD News

EUR/USD flirts with daily highs near 1.0900

EUR/USD: Worsening sentiment can push lower

EUR/USD Price Analysis: Rebound still seen reaching the 1.0990 area

Technical Overview

The EUR/USD pair is offering a neutral stance, holding above the 61.8% retracement of its latest daily advance at 1.0830, also the daily low. In the 4-hour chart, the 20 SMA is flat around the mentioned Fibonacci level, while the 100 SMA heads lower above the current level, converging with the 50% retracement of the same rally. Technical indicators hold within positive levels, although near their midlines, currently bouncing but lacking directional strength.

Support levels: 1.0830 1.0795 1.0750

Resistance levels: 1.0900 1.0940 1.0990

Fundamental Overview

The EUR/USD pair trades lower in range this Wednesday, having bottomed at 1.0829 for the day, now hovering around 1.0870. News indicating that the coronavirus pandemic’s death toll has picked up in some European countries and the US, while the number of contagions remains high, weighed on the market’s mood.

Equities trade in the red, although European indexes have managed to bounce from daily lows. US indexes are poised to open in the red. US government debt yields hold on to weekly gains, trading marginally lower but with the yield on the 10-year note holding above 0.70%.

The Union didn’t publish relevant data, while the US session will bring the Minutes from the FOMC Meeting from March 15. Given that the US Federal Reserve announced unlimited QE a week after that meeting, the document will likely pass unnoticed.

Big Picture

THEMES AFFECTING THE EUR/USD

SPECIAL WEEKLY FORECAST

EUR/USD Forecast: Back in the bearish path amid blindfold dollar’s demand

As expected, the shared currency strength didn’t last long. The EUR/USD pair resumed its decline these last few days, piercing the 1.0800 threshold by the end of the week.

FXS Signals

Latest EURUSD Analysis

Latest EURUSD Analysis

EUR/USD is recovering amid a better market mood

EUR/USD is trading closer to 1.09, recovering amid a better market mood. Earlier, the eurozone finance minister failed to agree on a joint economic response to coronavirus =.

GBP/USD advances toward 1.24 amid optimism about Johnson

GBP/USD is trading closer to 1.24, buoyed by reports that UK PM Johnson is breathing on his own. The market mood is calm amid hopes of turning a corner on coronavirus.

BTC/USD fades and challenges Altcoins to take leadership

Dominance charts show a positive spin for Ether to the detriment of Bitcoin. The technical structures also favour the project led by Vitalik Buterin. XRP fights to regain the $0.20 level and position itself in the race to the moon.

Gold remains confined in a range, around $1650 region

Gold extended its consolidative price action through the early North-American session and is currently placed in the neutral territory, around the $1650 zone.

USD/JPY struggles for a firm direction, holds steady below 109.00 mark

USD/JPY reversed an early dip to mid-108.00s, albeit lacked any strong follow-through. Investors refrained from placing fresh bets amid worries over the coronavirus pandemic.

Majors

Cryptocurrencies

Signatures

Influential Institutions & People for the EUR/USD

The Euro US Dollar can be seriously affected by news or the decisions taken by two main central banks:

The European Central Bank (ECB)

The European Central Bank (ECB) is the central bank empowered to manage monetary policy for the Eurozone and maintain price stability, so that the euro’s purchasing power is not eroded by inflation. The ECB aims to ensure that the year-on-year increase in consumer prices is less than, but close to 2% over the medium term. Another of its tasks is one of controlling the money supply. The European Central Bank’s work is organized via the following decision-making bodies: the Executive Board, the Governing Council and the General Council. Christine Lagarde is the President of this organism.

The Federal Reserve Bank (Fed)

On the other hand we found The Federal Reserve System (Fed) wich is the central banking system of the United States. Fed has two main targets: to keep unemployment rate to their lowest possible levels and inflation around 2%. The Federal Reserve System’s structure is composed of the presidentially appointed Board of Governors, partially presidentially appointed Federal Open Market Committee (FOMC). The FOMC organizes 8 meetings in a year and reviews economic and financial conditions. Also determines the appropriate stance of monetary policy and assesses the risks to its long-run goals of price stability and sustainable economic growth.

Christine Lagarde

Christine Lagarde was born in 1956 in Paris, France. Graduated from Paris West University Nanterre La Défense and became President of the European Central Bank in November 1st 2020. Prior to that, she served as Chairman and Managing Director of the International Monetary Fund between 2020 and 2020. Lagarde previously held various senior ministerial posts in the Government of France: she was Minister of the Economy, Finance and Industry (2007–2020), Minister of Agriculture and Fishing (2007) and Minister of Commerce (2005–2007).

Jerome Powell

Jerome Powell took office as chairman of the Board of Governors of the Federal Reserve System in February 2020, for a four-year term ending in February 2022. His term as a member of the Board of Governors will expire January 31, 2028. Born in Washington D.C., he received a bachelor’s degree in politics from Princeton University in 1975 and earned a law degree from Georgetown University in 1979. Powell served as an assistant secretary and as undersecretary of the Treasury under President George H.W. Bush. He also worked as a lawyer and investment banker in New York City. From 1997 through 2005, Powell was a partner at The Carlyle Group.

ECB NEWS & ANALYSIS

FED NEWS & ANALYSIS

About EUR/USD

The EUR/USD (or Euro Dollar) currency pair belongs to the group of ‘Majors’, a way to mention the most important pairs in the world. This group also includes the following currency pairs: GBP/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The popularity is due to the fact that it gathers two main economies: the European and American (from United States of America) ones. This is a widely traded currency pair where the Euro is the base currency and the US Dollar is the counter currency. Since the EUR/USD pair consists of more than half of all the trading volume worldwide in the Forex Market, it is almost impossible for a gap to appear, let alone a consequent breakaway gap in the opposite direction.

Normally, it is very quiet during the Asian session because economic data that affects the fundamentals of those currencies is released in either the European or U.S. session. Once traders in Europe get to their desks a flurry of activity hits the tape as they start filling customer orders and jockey for positions. At noon activity slows down as traders step out for lunch and then picks back up again as the U.S. comes online. If there is important U.S. data we can expect quiet markets just ahead of the number. U.S. economic news have the ability to either reinforce an existing trend or reverse it depending on by how much it missed or beat expectations with the EUR/USD news. By 5:00 GMT liquidity leaves the market once again as European traders close out positions and head home.

GBP/USD

The GBP/USD (or Pound Dollar) currency pair belongs to the group of ‘Majors’, a way to mention the most important pairs worldwide. This group also includes the following currency pairs: EUR/USD, USD/JPY, AUD/USD, USD/CHF, NZD/USD and USD/CAD. The pair is also called ‘The Cable’, reffering to the first Transatlantic cable that was crossing the Atlantic Ocean in order to connect Great Britain with the United States of America. This term was originated in the mid-19th century and it makes GBP/USD one of the oldest currency pairs in the world.

The popularity of the Pound Dollar is due to the fact that represents two strong economies: British and American (from United States of America). The Cable is a widely observed and traded currency pair where the Pound is the base currency and the US Dollar is the counter currency. After the result of the Brexit referendum, where the majority of the British voted to abandon the European Union, GBP/USD has been suffering some turbulence in the Forex market as a consequence of the associated risks of leaving the single market.

USD/JPY

The USD/JPY (or US Dollar Japanese Yen) currency pair is one of the ‘Majors’, the most important pairs in the world. Japanese Yen has a low interest rate, normally used in carry trades, that’s why is one of the most trades currencies worldwide. In the USD/JPY the US Dollar is the base currency and the Japanese Yen is the counter currency. The pair represents American (from United States of America) and Japanese economies.

Trading the USD/JPY currency pair is also known as trading the “ninja” or the “gopher”, although this last name is more frequently used when reffered to the GBP/JPY currency pair. The US Dollar Japanese Yen usually has a positive correlation with the following two pairs: USD/CHF and USD/CAD. The nature of this correlation is dued to the fact that both currency pairs also use the US Dollar as the base currency, such as USD/JPY. The value of the pair tends to be affected when the two main central banks of each country, the Bank of Japan (BoJ) and the Federal Reserve Bank (Fed), face serious interest rate differential.

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Trading foreign exchange on margin carries a high level of risk and may not be suitable for all investors. The high degree of leverage can work against you as well as for you. Before deciding to trade foreign exchange you should carefully consider your investment objectives, level of experience and risk appetite. The possibility exists that you could sustain a loss of some or all of your initial investment and therefore you should not invest money that you cannot afford to lose. You should be aware of all the risks associated with foreign exchange trading and seek advice from an independent financial advisor if you have any doubts.

Trading the News – EUR/USD and GBP/USD Day Trades

In a rare event, non-farm payroll data out of the US was released on Tuesday, October 22 due to the prior government shutdown. Non-farm payroll data is usually released on the first Friday of each month, at 8:30 AM EST.

Having a strategy for trading the non-farm payroll report should be in every forex trader’s arsenal, as it is one of the most volatile and potentially lucrative days we see. Realizing when not to trade around the news release is equally important though.

When Not to Trade

Regardless of if there is news or not, trading when there is very little volatility decreases the chances of a successful trade. If the pair you’re watching has only moved 20 pips all morning, it is going to be hard to snag a 10 or 15 pip profit. It’s best to sit out and wait for better opportunities.

Prior to major news releases the market is often fairly quiet, only presenting low-quality trade signals. That was the case before the non-farm payroll data on October 22.

Figure 1. EUR/USD 1-Minute Chart before Non-farm Payroll Data

I started watching the EUR/USD at about 14:00, and knew the data was due out at 15:30 (GMT+3:00). While trade signals were occurring, by looking at the overall structure of the price movements there were no high quality signals. A range developed prior to the news announcement, and choppy trading prior to the range didn’t provide a clear overall market direction which could be used to filter signals.

Patience is one of the greatest trading virtues. Anyone can make some winning trades, but it is the ability to avoid the urge to trade when conditions are not right that separate professionals from amateurs.

With no valid trade setups prior the non-farm payroll release, I focused my attention on the GBP/USD for the NFP release.

Trading the Non-Farm Payroll (NFP)

To trade the NPF report, I use the GBP/USD and a 15 minute chart. By using a 15-minute chart I am forced to wait at least 30 minutes for a trade signal to occur. During this time volatility will subside and I am less likely to incur slippage or get stuck in a very sharp move where my risk is unknown.

The basic strategy for trading the NFP report involves waiting for a consolidation after the initial wide-ranging bar the news releases causes. Once there is a consolidation, I trade the breakout from that consolidation.

The maximum stop is 30 pips, but can be less. If I am going long and there is a recent low to place my stop behind, I will do that. If I am going short, and there is a recent high to place my stop behind, I will do that. A typical stop is 20 to 30 pips for this trade.

I used a timed exit to get out of the trade, 4 hours after entry. A trailing stop can also be used as well. For example, if you are long, move your stop to below recent swing lows as they occur.

While the trade is not over yet, figure 2 shows the GBPUSD NFP trade from October 22.

A long trade is taken as the price breaks out of a consolidation (entry line marked) and a stop is placed below the recent low (stop line marked).

Figure 2. GBP/USD NFP Trade – 15-Minute Chart

While I use a timed exit, I will also place a profit target at 100, 125 or 150 pips (depending on overall market volatility). Since I don’t constantly monitor the position, this gets me out of the trade at a nice profit if the price runs aggressively while I am away from my screen.

So far the trade is showing about a 35 pip profit.

Trading the News Considerations

I utilize a news trading strategy, like the one above, only for major news releases, and if the news causes a strong initial price spike. This shows there is interest and a trend is likely to develop once the initial volatility subsides.

If I am stopped out twice in a row on a news trade, the price action is likely too choppy and the strategy is not utilized again that day.

Trades are never taken before the news release, only after the news release and only after the price has consolidated showing volatility has dropped and the market is about to choose its direction.

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