In this course, we will further explain, with an example, how you can trade a news release with a directional bias. In the US, the labor market report is one of the most anticipated new releases in a month. The report has a significant impact on any pair with USD. Note that every trader has their approach to trading the news with a directional bias. Here’s our approach.
If you are a forex trader with a directional bias, you need to have in-depth knowledge of the news release you are trading. What do we mean by in-depth knowledge? Firstly, you have to know what that particular news release tells about the economy. For example, the US labor market report has the unemployment rate and nonfarm payroll data.
When both these indicators beat the analysts’ expectations, we can expect that the USD will become stronger than other currencies. The US labor market report is a leading indicator of consumer demand, contributing up to 70% of the GDP. Furthermore, in the current coronavirus pandemic, the labor market report is used to show the rate of economic recovery.
You’d also expect the USD to weaken relative to currencies it is paired with if the news of the labor market report doesn’t meet analysts’ expectations. In this case, it means that unemployment increased, and the economy didn’t add as many jobs as expected.
To make a proper directional bias trade, you need to understand how the labor market report impacts the forex price charts. You have to look into past releases and establish how much the market moved; this will help you get the average pip movement. You also need to be aware of the prevailing macroeconomic conditions and the recent unemployment rate trend.
What to do before the news release?
Go back a few hours on your chart and establish the intraday support and resistance levels. You will use these levels as your ‘take profit,’ and ‘stop-loss’ levels after the news is released.
Let’s check out the news release of the US unemployment rate on October 2, 2020, at 8.30 AM EST.
EUR/USD: Before US Unemployment Rate Release on October 2, 2020, just before 8.00 AM EST
Since the unemployment rate was lower than the previous release and also beat analysts’ expectations, our directional bias is to be bearish on the EUR/USD pair. In this case, we will use our previously established Support Level as the ‘take profit.’
EUR/USD: After US Unemployment Rate Release on October 2, 2020, 8.00 AM EST