Do the ads central banks on market forecasts and thereby cause severe currency fluctuations? Recent studies ads central banks suggests that currency fluctuations can be caused not only decisions on monetary policy, but the words on the subsequent press conference, capable of causing a strong reaction in the market.
Over the past few years it has become evident that the European Central Bank (ECB), the US Federal Reserve Bank and the Bank of England hold their press conference after the adoption of important decisions to inform the markets about the direction of movement of its monetary policy. Forex trading can react instantly. Within minutes, the currency markets may be abrupt changes in the national currency of the central bank, made the announcement.
Classifieds central banks are an integral part of fundamental analysis, and, as in the case of other economic events, the main factor causing the currency fluctuations are market forecasts. If the acceptance or rejection of the measures by the central bank line with market expectations, the reaction is generally absent, because the event was predicted and reflected in the exchange rate before the announcement. Usually there is no such surprises as changes in interest rates, which caught markets by surprise, so there is no sharp currency fluctuations after the announcement of the central bank. Slight fluctuations, but usually the bank's actions have already predicted and reflected in the exchange rate.
A good example is the reaction of the market to classified the central bank this year, when the ECB at 12:45 announced the continuation of the previous monetary policy. Markets expect such a decision to keep interest rates unchanged, so the fluctuations in the market was not followed. Forty-five minutes of the ECB held its monthly press conference, as always, after the announcement of the interest rate. Traders listened attentively speech by ECB President, trying to catch hints at the future direction of monetary policy of the bank. In the language of central banks hawk (bovine) monetary policy indicates a rise in interest rates in the future, and a pigeon (bearish) - a fall. Keyword - "vigilance» (vigilance). If traders hear that word on the future monetary policy, they are expected to increase the key interest rate. At the press conference, traders are waiting to hear the word "vigilance", which would indicate a rate hike next month. ECB President did not say that word in his speech at the press conference, and shocked traders panicked. Unexpected news that interest rates do not rise, caused huge fluctuations in the currency markets.
This is a good example for beginners, trading in the event of fundamental analysis: should not rely only on the decision of the central bank, but also to listen carefully to the next press conference.
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