What News Matters?

It is not news that news moves financial markets. This blog will publish research on how, when, why, and which news moves what financial markets.

Today I will tackle a different data set. The Forex Resource Guide publishes an analysis of how a couple of currencies have moved in response to several economic announcements. The data is in a spreadsheet. I think this site and spreadsheet is due to Tom Yeomans but I am not sure as the site does not credit him. FYI, Tom's blog is here and he has another site here. I took the EUR/USD moves and modelled the move measured in pips.

• Note: the Forex Resource Guide author warns that: "The 'Move Pips' only represent the maximum length of the move based on my best judgment of what happened because of the economic report numbers."

I explained the move in the EUR with the actual minus expected number for the announcement.

• Note: the expectation here is a market expectation, that is a survey, not the usual derivative auction-based data that I usually use.

I then included a set of variables to identify which announcement had taken place. Out of a universe of 22 announcements only a few were significant. The statistically significant announcements for the EUR were:

• GDP Annualized
• Change in Nonfarm Payrolls
• Existing Home Sales
• PPI Ex Food and Energy

For those interested, here are the regression results, sorted by the most significant variable and then by the size of the coefficient:

VARIABLE	COEFFICIENT	STDERROR	T STAT	P-VALUE	SIG LEVEL	ABS(T)
Diff	-0.203241	0.0438242	-4.638	<0.00001	***	4.638
GDP Annualized	37.7114	13.1587	2.866	0.00485	***	2.866
Change in Nonfarm Payrolls	25.098	10.8746	2.308	0.02258	**	2.308
Existing Home Sales	-24.8642	10.8074	-2.301	0.023	**	2.301
PPI ExFood and Energy	19.8623	11.3957	1.743	0.08371	*	1.743

The variable News is the actual minus expected release and is , as expected, very significant. The coefficient on the announcement gives the average size of move from the announcement. So, the EUR moves, on average, 37 pips when the GDP comes out, and 25 pips when the nonfarm payrolls are announced, etc. The data covers a large number of releases, but there is not a lot of history for each release, thus limiting what can be done with it. However, pooling the announcements together gives a decent number of observations (135 for the above analysis) and so allows us to sort the wheat from the chaff for the 22 announcements. I gives traders a tool to help them determine which announcments to focus on. It also might be useful in determining triggers for trading opportunities. This however is beyond my ken. The data also covers the CAD and GBP, is anyone interested in a similar analysis for these currencies?