Did you know how important it is to know your market and how it reacts when an indicator or a piece of news is being reported? As an example from my experience as a trader, OIL WTI in over 50% of the situations when the crude oil stocks are being published for the first 15 fifteen minutes after the report being made public, the price will go rather in the opposite direction compared to what it would be expected from a fundamental point of view. I mean, if the supplies will come bigger than the expectations, this would mean that the price should decrease as the supply is bigger, but you would be surprised to see that the first reaction for the price it is to go higher and only after 10-15 minutes to reverse to expected course of action.
One of the most important macro indicator that influence the markets, but especially the FX markets is the GDP, which is the broadest measure of economic activity and the first one that signals how “healthy” an economy really is. The value of the GDP practically points to the ECB if the Eurozone recovered and managed to get out of the recession and every time Mario Draghi pronounces it in his speeches about the state of the economy the markets reacts instantaneously.
Basically, the GDP measures the change that occurs in the most recent quarter in the inflation-adjusted value of all goods and services produced by the economy. Important to know is also the fact that are three versions of GDP released about 20 days apart. There is Flash, Revised and Final. The Flash release is the earliest and this is why tends to have the biggest impact. Because after the markets have seen the Flash release they already know which could be the range in which the Revised and Final reports could be as the difference between them cannot too large.
Another aspect you should bear in mind is that the Eurozone Flash GDP has to be correlated with the ones of Germany and France, which are reported earlier, because these two countries represent almost half of the Eurozone’s economy. Your trading strategies should follow the following fundamental logic and I will take as an example EURUSD as it is the most tradable instrument in the world with a 24.1% of the global trading volume in 2013.
First of all, you have to focus on the forecasted value and the actual value. If the actual will be above the expected, then the Eurozone economy has a healthier economy than the markets have expected. The effect will be that investors will jump in to buy EUR because is more appealing and sell USD, which means that EURUSD quotation will appreciate. On the contrary, if the actual value is below the expectations, the economy is doing poorly and it has no advantage anymore to own that currency. So, the investors are disappointed and they will rapidly sell EUR and buy USD, which means that EURUSD will depreciate.
It is crucial to understand and apply this kind of trading strategies because in time it will give you a “feel” of the markets. Acquiring this skill will give you the ability to use the swings of the markets in your favor and turn profitable on a more frequently basis. I am ending this article telling you to watch closely the Eurozone Flash GDP release of tomorrow and beware of the markets mood.