Interest Rate News Trading

Interest Rate News Trading - Complexity vs Direction

News Trading Interest Rate Decisions - Complexity vs Direction

Central Bank interest rate decisions are a key part of news trading. Interest rates are a fundamental factor which can directly affect a currency pair over short, medium and long term. The actual moment of release is a kind of reflection of the central belief of technical analysis into fundamental analysis, that all the information is there, which is unusual as the affect of fundamentals is normally hard to gauge amongst all the competing influences on a traded market.

The complexity of a move can be seen as the market digesting the consequences of an interest rate decision. However a move happening on a decision can also be seen as containing technical information as well, as the market can change its momentum and even direction based on technical levels. Even the strongest most directional moves will pause or reduce momentum, before moving again, either in the same direction, consolidating or even reversing. Thus there is an interplay of factors in news trades, reflecting the myriad influences which affect the movement of a market.

This said news trades can be a special case, as they reflect one core fundamental factor, namely the data being traded. However the extent to which this data can overwhelm other factors depends on the extent to which this data can and the extent to which traders believe it will affect the market. This is why surprise is a key factor shaping a response, as surprise potentially lets a response overwhelm other factors, simply by concentrating a response on this new information. However the surprise itself lets in the possibility of a complex response given the uncertainty which new information can imply.

This said traders tend to trade the immediate reaction and if there is a clear even momentary implication from the surprise, then that can force the market into a strongly directional move. If there are clear longer term implications supporting this direction, then the market can continue strongly in this direction, even resetting itself into a new value range afterwards. However if the less immediate implications are uncertain, the market can trace out more complex moves, including oscillation.

Thus interest rate news trading is trading on complex patterns of uncertainty, but with the possibility of a strong reaction when the implications of the rate are allowed to line up to point to a given direction, at least withing a short term time frame. No matter what the market will move into more complex moves, possibly within volatile patterns, or even just a calm move which dissipates the initial reaction.