Micro Effects of Macro Announcements: Real-Time Price Discovery in Foreign Exchange
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What they found
Using five-minute exchange rate data for six years and survey-based expectations for dozens of scheduled U.S. and German macro releases, the authors measured how currencies react to the surprise component of each announcement. Prices jumped almost immediately (within five minutes) and the reaction was essentially complete within an hour; volatility stayed elevated for longer. Bad news moved prices more than good news, and payroll, trade balance, and durable goods surprises had the largest effects among U.S. releases. The paper established the standard event-study approach for high-frequency macro reactions.
What you can use
- Currency prices adjust to a macro surprise within minutes; by the time a retail trader reads the number, the move is done.
- The surprise (actual minus consensus) is what matters, and the size of the reaction per unit of surprise is stable enough to estimate.
- Volatility stays high for an hour or more after a release, so spreads and slippage are worst exactly when the temptation to trade is highest.
Caveats
1992 to 1998 data; the set of market-moving releases and their relative importance has shifted. Focuses on FX; equity and rate reactions differ in detail.
Tags: macro, announcements, forex, high-frequency
Summaries are our own reading of the paper, not the authors' words. Educational only, not advice. Discuss it in Book Club.