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Euro To Dollar – FED Funds Rate/FOMC Statement

There are only two pieces of fundamental news out today that are likley to affect the direction of the euro to dollar pair, and that is the FOMC statement, coupled with the Federal Funds Rate decision, which is expected to remain unchanged at <0.25%, so in a sense it will be the statement from the FED that is likely to be the more eagerly awaited by traders and speculators. The reason it is so important, is twofold. Firstly, it is the primary tool which the FED uses to communicate with the markets and investors, and there are often hidden clues within the text to indicate future monetary policy, which is why it is studied so carefully. The second reason is simply that these statements can then be compared, one with another, for clues as to any changes in policy or strategy as a result. The currency markets in particular react violently on the release, often moving in one direction immediatley, only to reverse shortly afterwards. The same often happens with the NFP data.  This activity is often ascribed to the idea that the markets react initially on the raw data, and then having had time to digest the detail, promptly take an opposite view! However you read it, this often happens and many traders get trapped on the wrong side. If you must trade the news ( I don’t personally), a decent stratgey is to wait for the first five minutes to settle, and then take a small position in the opposite direction to the initial move, but always trade with a stop NEVER WITHOUT!!!

In general, the more hawkish the tone of the statement, then this will generally be good for the currency, but as we saw yesterday with the consumer confidence hitting a record low, bad news does not always send the currency in the direction you expect. Well if trading were easy everyone would do it!