Today, we are going to tackle a fundamental side of forex trading. When an economic event or report comes out, usually there is an initial reaction from traders that can be full of action, but this is most likely temporary. There will also be a secondary reaction after the traders already had their time to reflect on what is happening on the market right now. That time will tell us if the market decided to follow or go on the opposite side of the current expectation. It also tells us if it is the expected reaction.
Consensus expectations, and economic events and reports
There are way too many upcoming economic events and reports from different sources. There is a term called consensus expectation which refers to an agreement about the things we have mentioned. People will try to average all the forecasts collected, and this will be the one that will appear on charts and calendars that tell a lot about the expectation levels of particular reports or events. In a sense, consensus becomes like a baseline where many things are compared with this established number. Furthermore, the data we receive can somehow be labeled like this:
- As expected = the reports are close to the consensus
- Better than anticipated = the reports came out better than the consensus
- Worse than predicted = reports came out worse than the consensus
These might look like any other labeling, but this is actually critical when we determine price actions. It should be accurate so that the price will not change as the reports get released. However, some traders already make trading decisions even when the reports do not come out yet. They may have way too much confidence in themselves or the consensus forecasts. For additional information, we can also call this action “Price in.”
Traders tend to price in the consensus forecast when they see that a report shifts the price. However, everything at this point is still unpredictable until the news is out. Here is what you can do: monitor the market commentary!
In trading, there are different types of analysis, namely: technical, fundamental, and sentiment. There are a lot of things that might happen before a report gets out. One thing that a trader should monitor is the price reaction. Will it react accordingly or against the trend? Will market sentiment get better or worse? Yes, fundamental analysis is critical but so does market sentiment. After all, a data report does not always end up like the way we expected it. Here is what you can do: make as many anticipations as possible and think of your following action for every likely market scenario and reaction.
We are just going to leave this here:
Data revision is always possible, and you need to be alert. Knowing that there is a revised data is not enough. You should also see the scale of that revision. The bigger the revision, the heavier the present data release analysis. Revisions are there to tell us if there is really a change in trend or not. Always keep an eye on the details of every release.