How Fed policy impact sharp movements in Forex pairs

1 בינו׳

In the second installment of my series on trading FOREX currency pairs, I emphasize the significance of adopting a macro view and comprehending central bank policies for achieving consistent profits in forex trading.

For those new to trading, I suggest revisiting my first post where I delve into the significance of analyzing interest rate differentials for your initial trading idea.

It's advisable to steer clear of trading signals provided by educators or social media traders that lack explanations and do not share a verified P&L, or lack a proven track record of consistent profitable trades by withholding their brokers statement. If you're aiming to incur losses in your trading journey, then feel free to join those who request payment for sketching lines on charts and label them as trading signals

Today, let's explore the influence of Federal Reserve speakers on potentially reversing EURUSD trends within the context of the broader macroeconomic landscape. By focusing on what Fed speakers communicate and acting on those, rather than relying on technical indicators, one could have achieved a very respectable 100% (even +600%) gain in their trading account, despite the modest 4.88% rise in EURUSD throughout the entire year!

In Summary the 2023 macroeconomics landscape,

Eurozone:
• Economic Growth: The Eurozone economy experienced a slowdown in 2023 due to the war in Ukraine, the energy crisis, and rising inflation. However, growth remained positive, surpassing initial expectations.
• Inflation: Inflation surged in the Eurozone in 2023, fueled by energy costs and supply chain disruptions. The ECB embarked on a gradual tightening of monetary policy, raising interest rates for the first time in over a decade.
• Geopolitical Risk: The war in Ukraine significantly impacted the Eurozone, raising concerns about energy security and economic stability.
• Political Developments: Political uncertainty in Italy and other Eurozone countries could have weighed on the Euro at times.

United States:
• Economic Growth: The US economy was comparatively strong in 2023, although growth moderated compared to the previous year.
• Inflation: Inflation also rose in the US, prompting the Federal Reserve to embark on a more aggressive tightening cycle, raising interest rates significantly faster than the ECB.
• Monetary Policy Divergence: The differing pace of monetary policy tightening between the ECB and the Fed created a major headwind for the Euro, strengthening the US Dollar.
• Trade Tensions: US-China trade tensions continued to simmer throughout 2023, adding to global uncertainty and potentially favoring the USD as a safe haven currency.

Mapping out the occurrences of currency-moving statements by Fed speakers along a timeline reveals their substantial influence compared to any technical analysis or chart data. By acting on Fed speak, one could substantially reduce their losses or increase their profits by creating very specific Fed trades

1. 2nd Feb FOMC Meeting: Fed maintains rates, but hints at future hikes
2. 15th March Powell speech: Emphasizes commitment to fighting inflation
3. 3rd May FOMC Meeting: Fed raises rates by 50 bps, signals faster tightening
4. 8th June Powell speech: Warns of potential recession risks
5. 25th July FOMC Meeting: Fed raises rates by 75 bps, strongest hike in decades
6. 20th Sept FOMC Meeting: Fed raises rates by 50 bps, reiterates commitment to fighting inflation
7. 2nd Nov FOMC Meeting: Fed slows pace of hikes to 25 bps, acknowledges economic slowdown
8. 14th Dec Powell speech: Indicates a Fed pivot

Make sure you plan your trades in accordance with the following FOMC meetings in 2024

January 30-31
March 19-20*
Apr/May 30-1
June 11-12*
July 30-31
September 17-18*
November 6-7
December 17-18*

* Represents a summary of economic projections - ie market movers

Good luck traders and here's to a triple digit account gain in 2024.