|
If you are trading the foreign exchange market then it is important to understand the relationship between the major central banks, particularly the Federal Reserve, and the behavior of the major currency pairs that you may be trading. Many traders prefer to use fundamental analysis to signal their trades, which means that they wait for economic data to move the markets such as an announcement about employment data or gross domestic product for the overall economy. One of the biggest fundamental economic announcements that moves the market is anything that is announced directly by the Federal Reserve. The Federal Reserve minutes meeting or FOMC is one of the most closely watched press releases by traders all over the world because this tends to be the format that the Federal Reserve will use to announce major changes or adjustments to official policy such as increasing the interest rate on the dollar. Because all of the major currency pairs have a US dollar component, an announcement from the Federal Reserve that moves the value of the dollar can be used as a trading signal for an opportunity to open a profitable trade across multiple currency pairs. Another important fact that foreign exchange traders need to know about the relationship between the Federal Reserve and the currency market is that while fundamental announcements can move the dollar, it can also set the tone for the other major central banks of the world to follow. This means that if we see the Federal Reserve announce a change in interest rates, it is possible and even likely that the other major central banks of the world will eventually follow suit, which can also open up other trading opportunities across the major currency pairs. An important consideration for foreign exchange traders to keep in mind is the rollover cost that you will incur as a difference of the interest rates between the two currencies in an open position. The issue of interest rates or any other major fiscal policy decision that is acted upon by the Federal Reserve can have a big impact on the foreign exchange markets and the value of the major currency pairs. Even if your forex trading strategy depends entirely upon technical analysis, you should still be mindful of any information released by the Federal Reserve since it can cause rapid price movements and fluctuations that can upset an otherwise highly reliable technical trading system. Algorithmic forex trading is one of the opportunites today that can allow retail traders working from home to have access to institutional level trading tools when trading the forex interbank market.
Related Articles -
Financial News, Financial Services, Financial Services Education, Financial Services Industry, Foreign Exchange, Foreign Exchange Market, Forex Market, Forex,
| 
