In 8 hours we will witness the perhaps most anticipated news event in Forex of 2015 so far. The FED will communicate their rate decision, accompanied by a written statement, economic projections and a press conference. The Dollar is fundamentally the strongest currency due to the expectation of a rate hike this year. This sets it apart from currencies like the Euro with its quantitative easing program and the Yen with its quantitative and qualitative easing program. Increasing the rate would cut inflation and encourage investors to come in, thereby increasing demand for the Greenback. And when demand goes up, the price goes up. Quantitative easing on the other hand is basically printing money to spur the economy and inflation. It weakens the currency by increasing the availability of it, which drives the price down. This difference is referred to as monetary policy divergence between these central banks (FED vs ECB / BoJ).
The Federal Open Market Committee looks at the job reports and inflation for their rate decision and if they would hike, it would be the first time in nearly a decade. I will not bore you with my personal prediction and tea leave reading on this, since I will not trade into the event anyway or hold any bias going in. As a matter of fact, I will close all open dollar positions beforehand to protect my trading capital. But the market players seem to expect a rate hike with a probability of about 30% and this is why volatility, spikes and zigzag movements can occur (not to mention some brokers charging crazy spreads during this event). Not only the rate itself is important, the statement and press conference are also key because the language a central bank uses (be it hawkish or dovish) influences the market and thereby the value of its currency.
In case of a hike, the Greenback will strengthen instantly which could last for weeks and months. Buying it against currencies with a diverging monetary policy would then be a good idea if you find a technically viable set up (never without!). In case there is no hike, the language will take center stage and will determine whether the Dollar will weaken or strengthen. If the language would be dovish, we will see a sell off of the Greenback and the Fibre will rally as a consequence (its not called the anti-dollar index for nothing). I will enjoy FOMC in Forex chat (the place to be for these high impact news events, exchanging ideas in real time as it happens!), assess whether the Dollar will strengthen or weaken fundamentally and then look for technically viable setups in that fundamental direction to make pips off this event, once the spikes and zigzag movements have died down.
I wish everybody good luck, trade safely, enjoy the event and lets make some pips!
Yep, I heard there were protesters outside of the press conference, opposing a rate hike.
jaan09
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Thank for givind additional hindsight on this topic. Always good to read directly from a trader.
My suggestion and personal preference is that the longer the argumentation below the graph the better.
JazzForex
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Sure thing! I will go into the event flat and hopefully come out of it with a few solid trade setups. Good luck to you and may the pips be with you!
alexander.gorodynsky
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In war as in war, all are good ways to victory
Keenk123
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Great information and insight. Keep up the good work. Thanks for sharing
JazzForex
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Glad you liked it :)
Lemnos
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Thanks jasper , regards
JazzForex
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Sure thing!
JazzForex
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As we are about to enter a period of high volatility with spikes, zigzags, wide spreads and an increased chance of slippage, let me quote the two rules for investing Warren Buffet lives by: “Rule #1: Preserve your capital. Rule # 2: Don’t forget Rule #1.”
what is it?
populism ....
bravo