What to do when a data report misses?
“You don’t need to be a rocket scientist. Investing is not a game where the guy with the 160 IQ beats the guy with 130 IQ.” Warren Buffet
Usually, reports fall broadly in line with consensus expectations, but there are times when the experts get it wrong, and when this happens, you will be sure to see lots of price movement. While you can’t see into the future, you can try to anticipate when an estimate turns out to be wide of the mark, or another outcome, and position yourself accordingly.
You can do this by asking yourself what would happen if certain things happen, such as what the market will do if the number comes out above or below expectations. You could even get more specific, for example, by asking what will happen if the report comes in under expectation by one percent – by how many pips will the price move downwards, and what would need to happen in the report to cause a drop of 30 pips?
By coming up with all the different scenarios, you can be better prepared for the market’s reaction, and stay ahead of the game.
On occasion, economic data is revised after the fact. For example, the monthly Non-Farm Payroll employment numbers (NFP) comes with revisions of the previous month’s numbers. Let’s say that the U.S. economy is in a slump and that the NFP figure for January decreases by 50,000 – the net number of jobs that have been lost. In February, the NFP is expected to fall by another 30,000.
However, in reality, it falls by only 10,000, which was totally unexpected. In addition, the revised January data, which is published in the February report, is revised upwards to show only a decrease of 20,000.
If you hadn’t seen the January report, you might have had a more bearish outlook on the dollar at seeing the 12,000 jobs lost in February, which is not far off the 20,000 lost in the previous month, and besides, consecutive drops are not good anyway.
However, if you take into account the fact that the market had priced in the January data, and that the revisions and the missed forecast were in fact upside surprises, then this could cause the dollar to start rising in price, despite the apparent bad news. When you look at the revised data from last month alongside the incoming data, you get a completely different picture of the employment situation.
So, not only should you make sure you check if revised data exists, you also need to be aware of the scale of the revision. When analysing the current data releases, big revisions carry more weight. They can also help to affirm a possible change in trend, or no trend at all, so you need to be aware of what’s released.
“We have long felt that the only value of stock forecasters is to make fortune-tellers look good.” Warren Buffet
Other articles in this series:
Forex Trading Fundamental Analysis Masterclass Part 1
Forex Trading Fundamental Analysis Masterclass Part 2
Forex Trading Fundamental Analysis Masterclass Part 3
Forex Trading Fundamental Analysis Masterclass Part 4
Forex Trading Fundamental Analysis Masterclass Part 5
Forex Trading Fundamental Analysis Masterclass Part 6
Forex Trading Fundamental Analysis Masterclass Part 7
Forex Trading Fundamental Analysis Masterclass Part 8
Forex Trading Fundamental Analysis Masterclass Part 9
Forex Trading Fundamental Analysis Masterclass Part 10
Forex Trading Fundamental Analysis Masterclass Part 11
Forex Trading Fundamental Analysis Masterclass Part 12
Forex Trading Fundamental Analysis Masterclass Part 13
Forex Trading Fundamental Analysis Masterclass Part 14
Forex Trading Fundamental Analysis Masterclass Part 15
José Ricaurte Jaén is a professional trader and Guest Editor / community manager for tradersdna and its forum. With a Project Management Certification from FSU – Panama, José develops regularly in-house automated strategies for active traders and “know how” practices to maximize algo-trading opportunities. José’s background experience is in trading and investing, international management, marketing / communications, web, publishing and content working in initiatives with financial companies and non-profit organizations.
He has been working as senior Sales Trader of Guardian Trust FX, where he creates and manages multiple trading strategies for private and institutional investors. He worked also with FXStreet, FXDD Malta, ILQ, Saxo Bank, Markets.com and AVA FX as money manager and introducing broker.
Recently José Ricaurte has been creating, and co-managing a new trading academy in #LATAM.
During 2008 and 2012, he managed web / online marketing global plan of action for broker dealers in Panama. He created unique content and trading ideas for regional newspaper like Capital Financiero (Panamá), La República (Costa Rica), Sala de Inversión América (Latinoamérica) and co-developed financial TV segments with Capital TV.
He is a guest lecturer at Universidad Latina and Universidad Interamericana de Panamá an active speaker in conferences and other educational events and workshops in the region. José Ricaurte worked and collaborated with people such as Dustin Pass, Tom Flora, Orion Trust Services (Belize) and Principia Financial Group.