EUR/USD News Trading Confusion

B

binar

Fellow Forum Members,
Why did the EUR/USD (in the H4 trading timeframe) shoot up like a rocket this morning upon release of the Pending Home Sales m/m news? I'm confused about this because the news was in favor of the USD (the forecast was for 0.1% and the Actual turned out to be 3.2%, good news for the US economy).

My thinking is as follows: since the EUR is the base currency and the USD is the quote currency, shouldn't news that favors the quote currency cause the base currency to drop like a rock? Instead, I looked on in dismay as the EUR price shot up like a rocket. In addition, I noticed that the pairs shown below where the USD is the quote currency also had base currencies with prices that shot up like a rocket upon release of this news:

EUR/USD
GBP/USD
AUS/USD

Alternatively, the pairs shown below where the USD is in the base currency position, the price fell down like a lead ball for the USD:

USD/JPY
USD/CHF

I would appreciate any opinions on this matter. I am totally confused, and I want to make sense out of all this because I'm planning on doing some trading based on news releases and I want to make sure I follow the correct logic as to how news impacts the base currency in relation to the quote currency. Any info will be greatly appreciated. Thanks.
 
Right now, a big correlation is good for economy - bad for dollar, because the dollar strength is due in large part to risk aversion.

Also, on news releases they take out tons of stops so it can go either way and then rocket in the other direction.
 
Because the dollar has had it. It couldn't even get above 90 in a worldwide recession. There is just no strength in the dollar anymore. No one wants it.
 
Thanks to all for their post.

Is anyone out there making any money trading the news. If yes, can you share what your thought process is on how forex factory news negatively or positively impacts the base currency in relation to the quote currency? The EUR/USD took off like a rocket today and next time this happens I would like to be better prepared.
 
My advice, don't trade the news. You need to read up on macroeconomics and get a feel for how interest rates, and central bank policy effects a currency. I've been short the dollar index for a week and a half. The spike in EUR/USD was expected. The EUR/USD moves in a close correlation to the us stock market. If you are expecting a bullish day, the Eur/usd will climb. If the market is entering a bearish phase, the eur/usd will fall, ie the dollar will strengthen.

The idea is that as the dollar is the world reserve currency, as it falls, it's bullish for world commodity and equitiy prices. When the dollar strengthens it creates deflation worldwide.

You can use the EUR/Jpy as a proxy for the world equity prices. If Eur/Jpy is in a bull phase, you can expect higher prices across the board as the carry trade inflates.

There you go, I gave you a little insight into trading.
 
RiceRocket,
Thanks for the insight you have provided via your post. I think I seriously need to consider going back to college and pickup some courses on international macroeconomics if my goal is to be successful at the currency trading game.

Do you know of any website or book out there that provides info on all of the correlations a currency has to other markets aswell as other currencies? I would like to get some of the smarts you seem to have relating to correlations. Again thanks for your post.

Quote from RiceRocket:

My advice, don't trade the news. You need to read up on macroeconomics and get a feel for how interest rates, and central bank policy effects a currency. I've been short the dollar index for a week and a half. The spike in EUR/USD was expected. The EUR/USD moves in a close correlation to the us stock market. If you are expecting a bullish day, the Eur/usd will climb. If the market is entering a bearish phase, the eur/usd will fall, ie the dollar will strengthen.

The idea is that as the dollar is the world reserve currency, as it falls, it's bullish for world commodity and equitiy prices. When the dollar strengthens it creates deflation worldwide.

You can use the EUR/Jpy as a proxy for the world equity prices. If Eur/Jpy is in a bull phase, you can expect higher prices across the board as the carry trade inflates.

There you go, I gave you a little insight into trading.
More...
 
Quote from KrispyKreme50:

Binar, I don't know if this is what you're looking for, but Oanda has a correlation graph tool at their website that shows how correlated currency pairs are to each other both short term and long term.

http://fxtradeinfocenter.oanda.com/charts_data/fxcorrelations.shtml
More...

KrispyKreme50,
Thanks for the link. Not exactly what I am looking for. Sorry for misusing the word "correlation".

Essentially, I am seeking for a website or a book that will list currency macroeconomic relationships that traders should keep in mind. For example, I heard that if the price of oil goes up the CADANDIAN Looney goes up in price. This is a "macroeconomic relationship" that holds true most of the time. I would like to find a list that will list all prominant macroeconimic relationships that currencies like the USD, JPY, CHF, EUR, GBP, CAD etc... have. If anyone out there know of such a list on a website or book, please point me to it. Thanks.
 
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