Okay, so before we go into the meat of the course in future topics, what I want to do right now is just briefly explain what an economic news announcement is. Because this is really the precursor to everything else that we will learn on the course. If you've watched the news or you read the papers on a regular basis, then you'll have a fair understanding of what economic news releases, but I do want to explain it from the very, very start. So you're absolutely certain on what they are and why they're important. Okay, so let's have a quick look at that. So what is an economic news release, it's simply a data point covering a certain component of a nation's economy.

So for example, in the UK, we have employment data, and we have inflation data. Those are just two examples of an economic data point which comes out on a monthly basis which will affect the local economy and have a knock on effect on the local currency. Now these economic events are released on a preset date and a preset time normally on a monthly basis. The great thing about this and we will have full visibility of all future economic events via calendar, which I'll talk to you about in due course, it means that we can prepare for events ahead of time, we can get a plan together ahead of time, and know exactly how we want to trade a particular economic event. In conventional terms, you normally hear about an economic event after it's happened, we want to actually prepare ourselves well ahead of time to take advantage of it.

Now each data point will be specific to a particular nation. And that will obviously have a knock on effect on the local currency of that nation. So UK data will have a knock on effect on the Great British pound. Us data will have a knock on effect on the United States dollar and what they do is they help these data points when you put them all together, they help to define the health of a nation's economy. So that health could be good health, or it could be bad health. So depending on what the data is saying on a regular basis will determine essentially the strength or weakness of a local currency and it's that strength or weakness, as we will see in future topics that we are going to use to take advantage of trading opportunities in the market every single month.

Now, why are they important? More importantly, why are they important to us as FX traders? Well on their own, they can provide immediate strength or weakness to a local currency. And we can use that to our advantage when devising a trading plan and taking a trading opportunity. Positive data generally in our state generally because it's not always the case but generally strengthens a local currency. What negative data weakens the currency?

When all of these data points are put together over several months, what it does is it helps a nation central bank, such as the Bank of England, in the UK, it helps them devise monetary policy something called monetary policy, which is essentially a strategy to actively improve or take the steam out of an economy because if an economy is not doing so well, the central bank will want to use a strategy to stimulate it. If the economy is getting out of control and growing too fast. The central bank will also want to take the steam out of that to prevent it from becoming a bubble and from becoming dangerous. So these data points are massively important because when you put them all together, the central bank will then decide whether they need to employ any policy or strategy and when they do that, that will have a knock on effect on the local currency, it will either be a strategy, which helps to weaken a currency, or strengthen it.

Now, as I mentioned briefly before, having an understanding of whether a currency is strong or weak will massively massively help us with trading the news because in its simplest format, what we want to do is trade currency pairs, where there's two currencies doing the complete opposite one strong and one's weak because that's where you get the biggest possible moves. We'll talk about strength and weakness in more detail in future topics. For now, it's just understanding from a high level perspective and we know that data points are very very important because they will have a short term and long term effect on the strength or weakness of a local currency. When do these economic news events happen? Well, it will all come down to the timezone that we are looking at. Think of the timezone as essentially a 24 hour clock because the FX markets are open 24 five, we have three trading sessions, which cover the three different time zones.

We have the European session, which is around about 8am to 4pm GMT. We have the North American session, which is 1pm to 9pm GMT. And we have the Australasian session from around about 10pm to 8am GMT. Now, the news that comes out in each session will be related to essentially the countries that are operating at that particular time. So between 8am and 4pm, we have the European session. So economic news will relate to European countries, Swiss countries and the UK.

Those are the currencies that we are going to concentrate on because economic news events will be related to those nations and those currencies in the North American session. It's related to the North America, which is America and Canada. So economic news events will relate to you United States dollar and Canadian dollar we don't really concern ourselves with South America because those are the more exotic countries or the more exotic currency pairs, we're going to concentrate on the major developed nations. So that's the US affecting the US dollar and Canada affecting the Canadian dollar. And then finally the Australasian session. The the the news events that come out are going to affect the developed nations of Australia, New Zealand, and Japan.

So the currencies that will be affected by those news announcements are obviously the Aussie, the kiwi and the Japanese yen. So the great thing about this is that it doesn't matter where you are in the world, you will have a timezone that you can trade. You can trade several sessions or you can trade just the one session that you are within. It doesn't really matter. There will be trading opportunities throughout all three over the course of a month. Now I mentioned briefly earlier, central banks now In the FX markets, and specifically regarding economic news, the central bank of a nation is massively important.

Why is that? Well, as I mentioned before, is they will monitor a combination of data points to determine their stance on their monetary policy. Now, this is a key thing, they will either be hawkish bullish, dovish, which is essentially bearish or just neutral for their currency. And they will communicate this to the market. So in later slides, I'll explain that in more detail. But they will take a stance depending on the economic news events that have come out over the last few months.

If it's a string of really good data, naturally, they will become more bullish, which is good for the local currency. If it's a string of really, really bad data, they will turn bearish on the local currency or if they're not quite sure so their economies okay, but it's not not great. They will take a neutral stance and not really have a bias either way. Now our job is to make sure that we do have clarity in regards to what the central bank, the central bank stances for a particular nation, because that will have an impact on the local currency which we will be trading. So as it says in the third point, the stance of the Central Bank and the actions they create monetary policy is used to either strengthen or weaken their local currency. And this will be watched very, very closely by institutional traders.

So your bank trades your hedge fund traders. And what we want to do is we want to do exactly what these bank traders do these hedge fund traders that we want to trade with them and I can assure you based on my experience of spending time with them, they will be trading these news announcements and we want to trade in the same line as them. How will they do that? Well, they will want to understand what the central banks stances and then trade in line with that. So for example, if a central bank is bullish, that will have a positive effect on the local currency, so institutional traders will look to buy that currency. If a central bank is the opposite bearish, then that's bad for the local currency that wants to weaken the local currency.

And then the institutional traders will look to sell that currency that will give us the ability to pair strong against weak which as I'll keep repeating gives us our highest probability trading opportunities. So the final point is when you trade in line with a central bank stance, it gives you the highest probability of generating consistent profits. We never want to argue with a central bank because they are too big to argue with we want to trade in line with their stance. And if they're wanting to weaken the currency, we will look to sell it if they want to strengthen the currency. We will look to buy it because we will trade with a central bank and the big institution And that is really where the market flow is. It's where the, the Smart Money lies.

So in regards to central banks, who is who we're going to concentrate on the developed nations, as we can see here, on the left hand side is the state in the country. And on the right hand side, it's the central bank, so you're aware of which is which. So in the US, the fed the Federal Reserve, in the UK Bank of England, in Europe, the ECB, or the European Central Bank, in Canada, it's the Bank of Canada, Switzerland, the Swiss National Bank, or SNP in Japan is the boj or Bank of Japan. And then in New Zealand, it's the Reserve Bank of New Zealand or the acronym is are the N Zed, or in Australia, it's the Reserve Bank of Australia, which the acronym is the R b. a. So these are the countries and the central banks, we need to be aware of to understand what their stance is, are they bullish?

Are they bearish? Or are they neutral? Because that can really really help us with understanding whether their local currency is strong or weak, because that's important in our trading decisions, as we'll see in due course. So just to give you some recent high level examples of central bank stance, and what you'll have noticed if you've been watching the news or reading the papers is this will make a little bit of sense to you, but it's giving you a bit more meat on the bone. So going back to q4 2014, early 2015. We had a massive dollar bull run so the dollar was gaining a lot of strength.

Why was that? Well, it was because of the stance of the Fed. We were getting some outstanding economic news events from the US employment was improving inflation was improving. We had business confidence, consumer confidence, we had a number of different data points all coming together. That said the economy in the US is really starting to take off. So they communicated their stance to the market and essentially just said Yeah, we are pleased with how things are going, we are getting closer to, we see that the economy is really starting to take off, we're getting closer to potentially raising rates in the foreseeable future.

Now, as we'll see, in due course, raising rates is a very positive thing for the local currency because it gives a better yield. But essentially, in its high level perspective is they became more bullish on their economy, which is good for the local currency, the Dollar strengthened against most of the currency pairs. So at that time, the only thing we wanted to be doing was buying the US dollar, because we were then trading in line with the Federal Reserve and the big institutions such as the headphone head funds, hedge funds, and the banks because they would follow the central bank as well. That's just what they do. Another example, which you've probably seen quite a lot on the headlines in the news in the papers was in January, the European Central Bank and the ECB after Have a really, really bad run of data mainly to do with inflation.

So employment was bad, inflation was bad. The the whole economic picture was looking really, really poor. So the ECB said, we're going to have to do something about this. We need to stimulate our economy. And one of the ways they stimulate economy is trying to weaken their local currency. So they launched quantitative easing.

They cut their interest rates. So they their policy, and their strategy was to weaken the Euro, because that was going to help stimulate their economy. So what did that mean for the Euro? Well, the Euro became hugely weak, massively weak against most of the currency pairs. So what were we doing at the time selling the Euro? There was no way we were going to buy the Euro because we'd have been going against the major central bank, the ECB would have been arguing with the hedge funds and institutional traders and that's only going to result in one thing and that's income.

System returns and more losses than gains. So that was a really, really nice example of how the Euro was was a great currency to sell towards the back end of 2014. And in early 2015, when the ECB physically adopted a strategy to weaken the euro. And then finally, one recent example, because this recording is taking place in July 2015. So last month, June 2015, the Reserve Bank of New Zealand, the Central Bank of New Zealand, they turned very, very bearish on their currency because recent data out of New Zealand had taken a turn for the worse, they were looking forward and saying our economy could struggle if we don't do anything if we don't adopt a strategy to weaken the currency and to help stimulate our economy. So in a similar way to Europe, the rbnz said, had to do something to stimulate the economy and one of the key strategies The central bank will do will be to try and weaken their local currency to help businesses that help consumers to help growth.

Many, many things, we don't need to go really into too much detail. All we need to know is that actually the central bank's concerned, they're going to weaken the currency. So what we do as a trader is we sell the New Zealand dollar. And if you look at the kiwi dollar chart, depending on when you're looking at, when you're physically going through this course, is look back to June 2015. Have a look at the charts and see how the kiwi dropped against the US dollar look at the New Zealand dollar against the US dollar and see how weak the kiwi was against the US dollar massively, massively weak. And that's because the majority of the major market participants were selling the kiwi because of the stance of the central bank becoming bearish and adopting policies to weaken the local currency.

So some nice examples. There are many, many more that I can go through, but hopefully you understand the whole point. Now. Just To summarize, is a central bank will take on board and digest the run of data. If that data is good, they will adopt a more bullish outlook on the economy that is good for the local currency and that local currency should strengthen. If it's the other way around and you get a string of bad data, then a central bank will obviously want to do the opposite and weaken their local currency.

And as a trader, we will look to sell that local currency. Okay, so just summarize the whole topic that we've just gone through. economic data is released every single month. And we're going to look to trade it every single month. It covers all major developed nations. That's what we're going to concentrate on predominantly, we don't really want to worry ourselves with the developing nations, we're more concerned with the developed nations.

So the likes of America, Switzerland, Europe, UK, New Zealand, Australia, Japan, and this data good or bad. We'll have a short term knock on effect on the local currency, making it stronger or weaker. So when a data point comes out, generally if it's good, it strengthens the local currency if it's bad weakens it. But it's more more to do with the string of data. So a run of good or bad data will push a nation's central bank to become more bullish on the currency or bearish. Now, it's this stance of a central bank, which will create a longer term knock on effect on the local currency, making it stronger or weaker.

On the previous slide, we obviously looked at three different nations, three different central banks, and how their stance on policy, effective occurrences currency, and then how that infiltrated our mindset as a trader and told us exactly what we wanted to do with that local currency. either buy it or sell it. And as a trader, we need to make decisions on whether we want to buy or sell certain currencies. So this information is massively important and puts the probability of success. Very, very high up So hopefully this has really opened up your eyes to economic data showing you how important it is and more importantly, giving you a little bit more of a guide as to how important a central bank is. So we're going to go into a lot more detail on this going forward.

But this is just to whet the appetite to really show you the power of understanding economic news events. Now it's all about how do we take advantage of them. So I'll catch you in the next topic.