Macroeconomic indicators and EUR/USD algorithmic trading and speed

Abstract

In the foreign exchange market, macroeconomic events are explicit impetus to determine the direction of FX price movement. This research makes two important contributions to the literature on EUR/USD macroeconomic events trading. Firstly, it is the first attempt to demonstrate the correlation between all macroeconomic announcements and the EUR/USD rate in nine economic blocs: the U.S., Eurozone aggregate and seven Eurozone countries. Secondly, we analyse the importance of speed in millisecond timestamps unlike previous studies which utilise 1 minute to weekly data to explain the mechanism and the profitability of the strategy. Of the 278 indicators regarding the U.S. and Eurozone countries, we uncover 43 high impact indicators which are appropriate for directional trading and compare the influence of each country, using the EUR/USD Spot rate from 6th March 2014 to 5th March 2016. It is important to note that the effectiveness of this strategy is highly dependent upon the opportune entry time. From the out-of- sample period in the following year, we gained 800 pips of return and found that a delay of 3 seconds or more significantly reduces the returns of the macroeconomic event-based strategies. Furthermore, it shows very explicit conclusions that the importance of speed is intensified especially for U.S. news, high surprises, news at 08:30 EST and during high volatility days.