[Forex Trading] DUH! Reaction to News is What Matters

[Forex Trading] DUH! Reaction to News is What Matters

Forex Trading

There is an old saying in trading that it is not the news but the reaction to news that matters. There is also an old adage that says the market can remain irrational longer than you can remain solvent. This is why you need to pay attention to the reaction to news as it will give you a clue about market sentiment.

This is especially true in the current environment where markets are hypersensitive to Forex Wisdom any headline news that might impact central bank monetary policy decisions and thus expectations of the course of interest rates.

Reaction to news

This was the case on Monday when a headline came across wires that Pershing Square Capital Management founder and CEO, Bill Ackman, said the fund had covered its short bond positions. This seemed to be the catalyst that sent US bond yields tumbling with ripple effects in other markets, such as in the forex market where the dollar went into retreat

Ignored were his comments that “there is too much risk in the world to remain short bonds at current long-term rates.”

In other times these headlines might have been offset each other but markets chose to focus on the former, not the latter, at least for one day.

by geopolitical risks when he added, “There is too much risk in the world to remain short bonds at current long-term rates,”

The moral of this story

I didn’t write this article to give a history lesson by recapping yesterday’s price action but to point out that in trading, the market’s reaction to news is often more important than the news itself. Savvy traders keep a close eye on how the market responds to news events to make trading decision, not just the initial knee-jerk reaction but to whether the reaction proves to be short-lived or can be sustained.

Jay Meisler, Creator and Head of the Global-view.com