Perhaps you have heard the explanation that all the news is already priced into the chart. Well, that explanation is not only unhelpful, but it is also untrue.
When you think for a moment it becomes obvious too;
how can a central bank’s policy be priced into the market if the policy has only just been released?
Furthermore, it is worth reflecting why virtually every single institutional trading firm spends large sums of money to get economic data releases as fast as possible.
A Bloomberg terminal costs $2000 a month and is only available on a minimum 24 month contract. Following central bank policy is a very profitable activity for the savvy trader.
For example, when the Bank of Japan issued a quantitative easing programme in April 2013 it injected large sums of money into Japan’s banking system.
The consequence was that the Yen rapidly devalued and went from around 80.00 to 115.00 over the course of 14 months. You see this example shows two things.
Firstly, it shows that it took 14 months for price to reach the expected 115 level, so it can hardly be said to have been priced into the market.
Secondly, it shows the impact of a central bank’s monetary policy. If you had been tuned into that central bank event you had 14 months to profit from the information. In the chart below you can see how the Bank of Japan’s QE programme influenced the USD/JPY currency pair.