Lesson 1 of 7 · 9 min
Why prices jump on releases
A release moves a currency by the part the market did not expect, and it does so in one jump. Learn what is already in the price and what is not.
By the end you'll be able to
- Explain why a release moves price only by the part the market did not expect
- Describe why the repricing happens in a jump that skips price levels
- Judge a release against its forecast, not against last month or against "good" and "bad"
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At 13:29 UK time EUR/USD is quiet at 1.0852. At 13:31 it is 1.0805, and almost nothing traded at the prices in between. Here is what happened in those two minutes.
The forecast is already in the price
Illustrative 5-minute EUR/USD chart around a US inflation (CPI) release at 13:30 UK. Step through it.
A release is published on the economic calendar days ahead, with a forecast: the consensus of economists. Traders and banks position for that forecast in the days before, so by release time it is priced in. The price already reflects the expected number.
What is left to price is the surprise: actual minus forecast. If CPI was expected at 3.1% and comes in at 3.1%, there is nothing new and the move is small, even though 3.1% is well above the 2% inflation target. If it comes in at 3.4%, the market has to reprice at once. You met this idea in Using the economic calendar and Inflation and CPI; this course is about what it does to prices and orders in the release minute.
Why the move is a jump
Between releases, banks and other liquidity providers quote buy and sell prices continuously and absorb orders at each level. In the seconds before a big release they shrink or pull those quotes, because nobody wants to be filled at a price the number is about to make wrong.
When the number lands, new quotes appear at the new value. The old levels are skipped. On a chart this looks like a long candle, but very little changed hands inside it. A move where price goes from one level to another with no trading in between is called a gap. Gaps on news are usually small and brief, a few pips, but they explain why a stop loss inside the jump cannot fill at its level. The next lesson puts numbers on that.
Why “good” news can sink a currency
The market compares the actual with the forecast, then asks one question: what does this change for interest rates? UK growth of 0.2% in a quarter sounds healthy. If 0.4% was forecast, it is a miss, rate cuts look a little more likely, and sterling usually falls.
Try it
| Time | Cur. | Impact | Event | Previous | Forecast | Actual |
|---|---|---|---|---|---|---|
| 13:30 | USD | ●●● | CPI (inflation, year on year) | 3.2% | 3.1% | — |
Slide the actual CPI figure. The reaction depends on the gap between actual and forecast. Reactions are illustrative.
Set the actual to 3.2%, the same as last month: the verdict still has the dollar strengthening, because the market is measuring against the 3.1% forecast.
Quick check
Quick check
Question 1 of 4
CPI is forecast at 3.1% and comes in at 3.1%, well above the 2% target. What is the usual reaction?
Question 2 of 4
UK GDP: forecast 0.4%, previous 0.1%, actual 0.2%. What is the likely direction for sterling?
Question 3 of 4
Why does price often jump 40 pips in seconds without trading at most levels in between?
Question 4 of 4
Forecast 3.1%, actual 3.4%. What is the surprise?
Go deeper: How to read an economic calendar · What is CPI? How inflation data moves forex · Trading around news