When the sign of the surprise is ambiguous

[Fairman]

When the sign of the surprise is ambiguous

Not all data releases have an obvious meaning. Higher unemployment is bad for a currency in most cases. Not always. When a central bank is worried about inflation, a weak labour number can mean fewer rate hikes ahead, but could also reduce the pressure on inflation and support risk assets.

During a regime where bad news is good news, the currency might rally on a weak number. The same number in a different regime would drop the currency.

Retail scalpers who run a simple rule such as "better than forecast means buy" get hurt when the regime shifts. The price reaction is not just a function of the number. It depends on what the market expects the central bank to do with it.

Checking the recent price reaction to the same release type is a cheap guide. If the last three weak releases produced rallies, the market is in an unusual mode.

Also worth noting is that price reaction can flip within minutes as the market reassesses.

How reliable has the "better than forecast" rule been on the releases traded over the past year?