This page sets out what drives each type of market and how the economic calendar works, including why news is priced in before it’s published. It covers what central banks do to every market at once. You’ll see how company results reach a share CFD and what supply and demand mean for commodities. It ends with why trading the news is harder than it looks.
Key points
- Each market type has its own main driver. Currencies move with expected interest rates, indices with company earnings and rates. Commodities track physical supply and demand, and single shares respond to company results.
- A scheduled release shifts the market according to how much the number differs from the consensus, the figure most forecasters expected. Because the consensus is already in the price, the number on its own matters less.
- Every market moves on central-bank decisions, since those decisions alter the interest rate for valuing future income. Hints about future decisions sway markets as much as the decision itself.
- Company results can cause a share CFD to gap at the open, with the price moving straight from one level to another and skipping over any stop set in between.
- Trading the news is harder than it looks. Prices react quickly, and the spread, the gap between the buy and sell price, is wide at that moment. The first move often reverses.
The main drivers of each market
Each market has its own main drivers. The first use of fundamental analysis for a CFD trader is to identify which driver matters most in which market.
| Market | Main driver | Other drivers | Where the news comes from |
|---|---|---|---|
| Currency pairs | The difference between the two countries’ interest rates, and where it’s expected to go | Inflation, growth, trade balance, investors’ appetite for risk | Central-bank decisions, jobs and inflation releases |
| Stock indices | Total company earnings, and the interest rate used to value them | Growth data, sector weights, currency | Central-bank decisions, growth data, earnings seasons |
| Commodities | Physical supply and demand | Stocks in storage, weather, the US dollar, producers’ decisions | Storage reports, crop reports, producer meetings |
| Single shares | Company earnings and the company’s own forecast (guidance) | Sector news, joining or leaving an index, corporate actions | Results announcements, regulatory filings |
| Cryptocurrencies | Money flowing in and out, and market mood | Regulation, exchange events, token supply schedules | Regulatory announcements, exchange incidents |
The economic calendar and how releases are priced
The economic calendar is a published schedule that lists data releases and policy decisions. For each release it gives the time, the previous figure and the consensus forecast, the figure the market expects. Releases are priced in before they come out. By the time the number appears, the price already reflects the consensus, so the market reacts to the surprise, the difference between the actual figure and the consensus. Traders who bought in advance sell once the number is out, so a strong number that everyone expected can even send the price down.
The releases that move currency markets most are those that shift expectations around interest rates. These include jobs reports, inflation figures, growth data and purchasing managers’ surveys, which ask company buyers about business conditions. The US employment report from the Bureau of Labor Statistics is released on a fixed monthly schedule (Employment Situation). In the minutes around this release, a provider’s spread on the dollar pairs widens (forex trading).
The economic calendar page explains how to read each column and covers the releases traders watch most: NFP, CPI and the FOMC decision.
Central-bank policy
Central-bank policy sets the short-term interest rate for each currency. Through that rate, it also sets the discount rate: the rate used to value the future income of every asset priced in that currency. So when the European Central Bank, the Federal Reserve or the Bank of England announces a rate decision, every kind of market moves at once (ECB decisions, FOMC meeting calendar, Bank of England monetary policy).
The decision itself is usually expected. The guidance about future decisions tends to be where the surprise comes. The central bank gives that guidance in its statement, at the press conference and in its published forecasts. Within minutes, markets price the guidance.
The policy rate also sets the swap on a currency CFD, the charge or payment for holding a trade overnight. Hold a currency whose central bank is raising rates and you tend to receive more each night. Being short that currency, meaning you’ve bet on it falling, tends to cost you more (costs and fees).
Earnings for share CFDs
Earnings for share CFDs come with a company’s quarterly or half-yearly results. Companies release these outside market hours, along with guidance, their own forecast for the next period. The share price then jumps in one step at the next open. That jump’s size depends on how much the results miss or beat the analysts’ consensus, and even more on the guidance. A company that beats expectations but cuts its guidance can open sharply lower.
On a CFD, the gap at the open jumps straight past any stop placed inside it. Your margin is the deposit backing the trade. The 5:1 retail cap on leverage for single shares applies if the company that opens your account is regulated in the EU or the UK. At that cap your margin is a fifth of the trade’s size, so a 20 % gap wipes it out (ESMA ESMA Decision (EU) 2018/796, shares and crypto CFDs).
Supply and demand for commodities
Supply and demand for commodities are physical quantities, published in scheduled reports. The data includes weekly oil and gas storage figures, monthly grain supply and demand estimates, and production numbers from producer groups and national statistics agencies. A commodity’s price responds to the balance between how much is produced and how much is used, adjusted for what’s in storage. The reports that update those amounts work like an economic release, following the same logic of consensus and surprise.
Commodity CFDs jump from one price to the next more often than currency CFDs do, because weather, strikes, sanctions and shipping problems change supply without warning (commodities trading).
Why trading the news is harder than it looks
Trading the news looks simple because you know when the release happens and you know the market will move. It’s hard for four reasons, and a demo account rarely shows you any of them.
The reaction is fast
The reaction to a release gets priced in seconds by traders who have quicker connections and larger balances. If you enter a retail order once the figure is published, you’re stepping into a move that has mostly already run. Placing an order before the number comes out turns into a coin toss on the surprise.
The spread widens
In the minutes around a release, the spread widens and on some instruments reaches several times its normal size. The cost of getting in is highest at exactly the moment you place the trade (how a trade works). Any stops you leave in place through the release get filled at that wider price (economic calendar).
The first move often reverses
The first move after a release often reverses within minutes, as the market takes in the details behind the headline figure. A trade based on the headline can be stopped out by that reversal before the real direction is clear.
The provider may restrict trading
A provider may restrict trading around scheduled events, and its terms allow this. It can raise margins, widen spreads or disable some order types. If you sized a trade for normal margins, the provider can close it out under the temporary ones (leverage and margin).
Questions about fundamental analysis
Most questions about fundamental analysis come down to what it is, how it differs from reading charts and which news matters.
What is fundamental analysis?
Fundamental analysis studies the economic, financial and physical facts that determine an asset’s value. For currencies this means interest rates, for shares it means company earnings, and for commodities it means supply and demand. It explains why a price moves but doesn’t tell you when.
What is the difference between fundamental and technical analysis?
Fundamental analysis examines why a price moves, while technical analysis looks only at the price itself. The first studies interest rates, earnings and supply figures. The second studies charts and indicators built from past prices (technical analysis). Many traders use both, and neither removes the risk of a leveraged trade.
What does priced in mean?
Priced in describes a market that has already shifted to account for expected news. When a number is released, the price already reflects the consensus forecast. The only thing the market then responds to is the surprise, the difference between the real figure and what was predicted (economic calendar).
Which news moves forex the most?
The news that moves forex most is the news that changes where interest rates are expected to go. That means central-bank decisions, jobs reports and inflation figures. You can find the releases and what each one measures on the economic calendar page.
What is hawkish vs dovish?
Hawkish and dovish describe the tone of a central bank. A hawkish statement points towards higher interest rates or keeping them high. A dovish one points towards lower rates. When a central bank sounds more hawkish than traders expected, its currency tends to rise. When it sounds more dovish, its currency tends to fall.
Risk warning
Knowing why a market moves doesn’t make a leveraged trade safe
Knowing why a market moves doesn’t make a leveraged trade safe. Over months, your fundamental reading can be right, yet over the few days you hold a CFD it can still be wrong. A trade at the retail cap on leverage that an EU or UK company applies won’t survive those days. ESMA’s 2018 press release noted that national regulators had found 74 % to 89 % of retail accounts lost money (ESMA press release, 27 March 2018).
Sources
The original documents this page cites, in the order they first appear.
- U.S. Bureau of Labor Statistics, BLS
- Employment Situation, U.S. Bureau of Labor Statistics
- European Central Bank, ECB
- Board of Governors of the Federal Reserve System, Federal Reserve
- Bank of England, Bank of England
- Monetary policy decisions, statements & accounts, European Central Bank
- Meeting calendars and information (FOMC), Federal Reserve
- Monetary policy, Bank of England
- European Securities and Markets Authority, ESMA
- ESMA Decision (EU) 2018/796 of 22 May 2018 to temporarily restrict contracts for differences in the Union, Official Journal of the European Union (EUR-Lex), 2018-05-22
- ESMA agrees to prohibit binary options and restrict CFDs to protect retail investors, ESMA, 2018-03-27