Pre-Event Deviation in Correlated FX Pairs as a Predictor of Post-Release Momentum

This paper investigates whether a currency pair's deviation from the average movement of its USD-correlated peers before a high-impact news release predicts the size of its post-release price move. Using tick data for seven major USD pairs across 529 events from 2010 to 2025 (3,594 observations), the study finds a statistically significant positive relationship between pre-event deviation and post-release momentum. More importantly, the predictive power is not evenly distributed across the pre-event window. A 30-second window placed immediately before the release yields a correlation of r = 0.417, compared to r = 0.048 for the same window placed five minutes earlier. The signal decays monotonically with distance from the release. This time-decaying structure suggests that last-minute positioning carries information about subsequent momentum, with implications for event-driven trading strategies.