I’ve been paper trading for a while and wonder if someone has created a grid as to what pairs are typically affected with news on a different currency. Thanks.
Welcome to the community, TommyJW. I haven’t seen one, but you might start by looking at the major pairs and tracking their responses to news events. Hopefully, others can share any resources or tools they know about! Just helping to bump this topic up in case someone has ideas to share.
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To make sense of this Tommy you need to understand risk sentiment.
If a news piece out of the US prints recessionary for instance that’s going to trigger risk off flows, which in turn spill across all currencies, NO exceptions.
To make it simple…
There are two types of currencies:
Here’s how you can categorize them:
- High Beta Currencies: These are the ones that thrive on growth. It’s the AUD, NZD, CAD, GBP. If the global economy’s looking good, these currencies are in the top of the list for investors
- Low Beta Currencies: Now, these are the designated drivers when things look rough. We’re talking about the USD, the JPY, and the CHF.
In other words, regardless of what you are trading, if something triggers a “risk off” type of scenario then you will have low beta currencies OUTPERFORM high beta.
And in a “risk on” type of scenario you get high beta currencies to OUTPERFORM low beta.
I’m simplifying of course, but it’s just to lead you into the right direction.
So remember…
When you look at economic numbers think also how those affect the risk sentiment.
Let me give you a practical example.
In August there was an ISM number from the US that printed VERY weak, triggering recessionary fears…
So do you think that was contained to USD weakness?
No, not at all.
It triggered safe havens inflows to CHF and JPY…
Anything against JPY and CHF got pounded.
Why?
Recessionary risks triggering safe havens (CHF, JPY, and USD) inflows.
And that’s risk sentiment.
You may not get it at your first read, but dive deeper into this subject because it’s REALLY important for your trading, regardless of which asset you trade.
Any question, feel free to ask.
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That is amazing information. A million thanks. Helps tremendously.