In FX trading as well as in equities, bonds and commodities trading, we are used to reports being released to the market that we know the date and time but not the impact. They are called known, unknown events . We know that a Central Bank, for example, is releasing their Monetary Policy Statement on a certain date and specific time. But what we don’t know is what the report says and more importantly, how the market will react to it. Again a known, unknown event is quite common.
However, when there is news that hits the tape, or the Twitter feed unexpectedly, these are called unknown, unknown events since we had no idea who was saying something, when they were going to release it, what form in which it would take place and what was going to be disclosed.
We experienced such an event last night, when President Trump, in a tweet, announced tariffs on Mexican goods into the US. Hence, an unknown, unknown and we needed to be prepared for it.
Easy to say, sometimes difficult to execute. But we have history on our side. We’ve seen Central Banks come out and announce a rate hike or rate cut without notice. The markets react typically with a sizable move one way or the other since the new information is not priced into the market. We have also seen this President release critical policy statements by tweet.
All of this new information can and will have a major impact in the price action of the financial instruments we trade. In particular, FX traders who have a 24 hour liquid platform to execute new trades or close out existing positions can react very quickly to the news.
The bottom line is that we need to pay close attention to the environment in which we trade and be astutely aware that unknown, unknown events are becoming an increasingly important part of our trading experience.
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