Forex traders already received insight from two central banks today; the Bank of Japan during the Asian trading sessions and the Bank of England during the European trading session. The North American trading session will add the Bank of Canada to today’s mix. Every forex trader has felt an impact by announcements and decisions out of central banks.
Here is how the two already reported announcements have impacted today’s trading day so far:
- Bank of Japan – The Bank of Japan did not really have an impact on the Japanese Yen as no monetary policy changes were hinted at and forex traders do not expect a slowdown in economic stimulus for 2014. The Japanese economy is showing modest growth and inflation shows signs of an increase. The only change came as the statement released dropped the reference to economic uncertainty which shows the Bank of Japan is confident about the economic outlook. Forex traders are advised to be careful as central bankers tend to be overly bullish and behind the curve in terms of real economic developments and activity.
- Bank of England – The British Pound rallied after economic data showed the unemployment rate decreased much faster and steeper than expected and currently stands at 7.1%, just 0.1% above the previously announced threshold for a potential reduction in economic stimulus as well as an interest rate increase which should further power the British Pound Sterling higher.
Here is what could play out after the Bank of Canada announces its interest rate decision:
- Bank of Canada – There has been an increase in central bank watchers who think that the Bank of Canada could announce a stimulus or interest rate cut as early as today which makes the Canadian Dollar a highly targeted trading product especially after the release. Should the Bank of Canada cut interest rates down to 0.75% the Canadian Dollar could shed as much as 200 pips in a violent sell-off.
Central banks carry a great influence on forex markets and therefore have the ability to catapult currency pairs higher or push them off of a cliff. It is very important to never forget when a central bank meets, makes an announcement or publishes minutes from a meeting. In many cases it may explain what happened to your charts or existing trade set-ups.