Like mentioned here on the Forex Trading Academy, central banks and the interest rate decisions they took are the economic events that are moving markets as they are shaping the way traders act and react between those important events. Well, these decisions are sometimes being followed by a press conference and when this is happening, this is more important than the interest rate decision in the first place.
What Is Causing Forex Market Movings?
For example, in Europe, the ECB interest rate decision is always being followed, 45 minutes later, by a press conference and Mr. Draghi, the president of the ECB is reading the statement in the first part of the conference and the second part is dedicated to questions and answers from the press representatives from around the world.
And here is the trick, as one never knows what the question will be in the first place, but also what the answer would be as well. We had a classical example last time when the ECB cut the interest rate back in November 2013 and while the initial reaction was negative for the Euro, at the press conference Draghi insisted that inflation will pick up in 2014 and just like that the currency found a floor and buyers resurface. In the United States press conferences were introduced only in the last two years and they are coming with the Fed economic projections on the economy and this is moving markets as well.
So when trading binary options make sure you see on the economic calendar when these press conferences are happening as they are extremely important. When it comes with trading binary options based on fundamental analysis one has to have a clear plan in mind otherwise it is not possible to simply take a trade and let it go.
Therefore, combining fundamental analysis with technical analysis is the way to go as the fundamentals are offering a reason for price to move while the technical part is offering targets, levels, striking prices, etc.
Big Central Banks and Their Influence on the Forex Trading
Recently the major central banks in the world have introduced the concept of forward guidance. The aim of it is to help market participants understand better what the central bank’s intentions are and to maintain price stability.
In order to do that, a better communication is hunted and central banks are striving for it. Being the bigger central bank in the world, the Federal Reserve of the United States introduced press conferences every other 2-3 meetings and such a press conference has two different parts:
– in the first part the Chairman/Chairwoman is reading the statement the Committee issued earlier in the day together with member’s point of view on future rate moves. Basically each and every member of the FOMC (Federal Open Market Committee) is making a forecast two to three years forward in time based on his/her own views regarding the shape of the US economy, etc. Based on those projections, market participants are forming on opinion if the Fed members are bullish or bearish, hawkish or dovish, and this constitutes the basis for a trade to come.
– the second part of the press conference brings questions and answers as press representatives are asking questions regarding the state of the economy, what the Fed really means, intentions on the long/medium term, etc.
Important Factors And Influences
During these press conferences volatility surges and sometimes in a blink of an eye market is travelling one or two big figures in the currency market (means one or two hundred points/pips) but this is not that important in binary trading as in binaries what really matters is for the option to expire in the money. Therefore, choosing a bigger expiration date is indicated when press conferences are taking place.
To take the major central banks in the world, if one is trading the ECB (European Central Bank) press conference, which is coming at the start of the month, on a Wednesday, then trading end of week or even end of month would be much more realistic than trading end of day or even shorter expiration dates. The same is valid for RBA (Reserve Bank of Australia), BOC (Bank of Canada) and Fed, as mentioned earlier. One major central bank is not having a press conference unless it moves on rates and that bank is Bank of England. Rest of major central banks are trying to communicate as often as possible their intentions in order for market not to be surprised and volatility to stay low. Useless to say that rarely they succeed as markets have the natural tendency to keep trying to anticipate the move to come after the move that what already announced and so on.
Find out more about the timing when press conferences and economic projections are released and where to be found within the economic calendar by watching the recordings that are coming with this project.