A market reaction is a sustained period of volatility or a strong directional movement that follows a news event or a relevant economic release. A market reaction comes in three basic types:
Market reactions vary in terms of predictability. Positive GDP growth often boosts a currency, but this depends on whether it is as positive as the majority of the market expected as well as how that growth compared to other countries, and so on. Political instability is usually a surefire way to cause a dip in a currency, but if an inflationary regime is replaced, the market reaction could go the other way. It is possible for forex traders to become very accurate at reading and trading the market reactions to economic reports and other calendar events before they happen. Doing so requires following world news and economic fundamentals in order to get an understanding of market sentiment leading up to key economic reports. Trading the market reaction after unexpected events like war and natural disasters is much more difficult. Economists or central banks sometimes telegraph economic reports, currency interventions and other economic events to the market. This is done to reduce the severity of the market reaction by releasing the information early.
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