After going through the highly organized data releases and central bank decisions, there is one last piece of fundamental analysis that you need to be aware of. Event risk is anything that will move markets, but that you can’t see coming.
There are just so many different types of headlines that come from a whole range of different places. Some credible and some not. Funnily enough, it is often the least credible headlines that get the most attention from markets!
Keep an eye on the News Terminal for streamed news headlines that have the potential to move Forex markets. These could be central banker or politician comments, unexpected good or bad economic news, or even something as wacky as a new life-changing invention! If it’s something confronting flashing up on trader’s screens, so often they hit the buy/sell button first and ask questions later.
Natural disasters are one headline that nobody wants to read, but unfortunately for all of us, they are a fact of life. I’m sure you all remember the devastating Japanese earthquakes that rocked the island and triggered multiple tsunamis? This saw USD/JPY instantly shoot up as traders exited their Japanese Yen exposure and sought the safety of US Dollars.
Natural disasters aren’t something that people can plan for, but they are reported instantly on social media wherever they happen in the world. You have no excuses if you let yourself get caught out by a natural disaster headline.
Terrorist attacks, declarations of war, and political tensions all have an effect on Forex markets. In our recent memory, we of course have the devastating attacks in the French capital of Paris. This saw money leave the Euro, as fears over what sort of an impact this would happen on consumer confidence and spending in the Eurozone, as well as a flight to US Dollars in the risk-off market.
It is almost a sad reflection on where human society is at right now, that a terrorist attack actually might not move markets at all due to the frequency that they occur and are now reported. If North Korea reporting the successful test of a hydrogen bomb can’t move markets, then really what will?
The question of whether being able to profit from events that often see such widespread loss of property and even life comes up here and isn’t something that we can ever answer. We do however say that these events are a fact of life in the world we live in today and first and foremost, you must manage your risk around them at the very least.