Consensus and Expectations

Consensus and Expectations - It is the expectation of what is going to happen and the relationship between the consensus and the expectation that will drive the market in a particular direction at the time of a particular announcement. Most traders only regard consensus and many times confuse consensus with expectation. They are not the same thing – consensus is the average value of opinions regarding an economic indicator, while expectation is the emotional investment in that opinion. In other words consensus is the rational part (or logical) and expectation is the irrational part (or emotional).

The dynamics between expectation and consensus is continuously displayed in the market at the time of an announcement. It is very difficult to know what is going to happen not only before the announcement of the economic indicator but also at the time of the announcement as well as after. Countless times I have seen a good report in line with consensus coming out and then the price starting to fall a few minutes after. The reason we have this peculiar behavior is due to discrepancies between these two. Of course sometimes the reason is that the report on the surface looked good and then when digging deeper it was not really as good as it seemed.

Consensus is easy to look up – just go to my FOREX Economic Calendar. You find it under the "Forecast" headline. Expectations can only be monitored through market action.

Sometimes is can be helpful to look at tick volume (if available) or bid/ask spread ratio (if available). According to my own research both of them are not 100% reliable, but can sometimes give a good indication of the direction.