The central bank of the US, the Federal Reserve (Fed), ensures a stable economy by regulating interest rates and other means. It also controls the money supply. It consists of 12 Federal Reserve banks from various districts of the US as members. Eight Federal Open Market Committee (FOMC) meetings every year to make important monetary policy decisions and review financial conditions.
The FOMC discussions are very crucial in forex trading. Decisions made from these meetings influence the USD values and may lead to market volatility, thus having an impact on the currency exchange rates. For example, increasing the interest rate can make the USD stronger and lowering it can have the opposite effect. The FOMC meeting can help make the right investment decisions.
The Forex Volatility Report
The forex volatility report helps to spot trading opportunities so that the traders can manage risks effectively by adapting to various trading strategies. In the forex volatility report, you will find data that can affect the markets. Here, the traders can learn about the Fed’s interest rate and know the press releases after the FOMC meetings. The press releases contain news about future policy changes.
After the FOMC meeting, you have to look for pairs with high volatility like AUD/JPY, USD/TRY, and others. In times of high volatility, the currency pairs can move rapidly and unpredictably. This may increase the amount of potential losses. Using the volatility report the traders can find out the most appropriate strategy to minimise the loss.
Volatility occurs due to specific economic events like inflation data, the decision of the bank interest rate or employment status. By looking at the volatility report, traders can anticipate the volatility spikes to plan their entry or exit options to reduce risk.
Which Pairs To Watch For
The year is coming to an end, and its time for the Fed, BOC and ECB to decide on the tone of the forex market. The financial market is also getting ready for its last move. Normally, this period of the year sees a liquidity squeeze as the financial institutions try to increase their cash holdings to meet the year-end regulatory requirements. This increases the borrowing cost in the interbank segment, thus increasing the short-term interest rates. You should try to trade high-volatility pairs as the rapid movements in price will increase your chances of daily profits.
EUR/USD
This pair is very sensitive to U.S monetary policy changes. So, it can have price swings after the FOMC meeting. You can expect to see consistent moves as a result of the weakening of the USD due to rate cuts by the Fed and the opposite move by the other central banks, such as the ECB. It is a reliable pair that provides consistent opportunities every day.
USD/JPY
After the FOMC, this pair experiences significant movements. This is mainly due to the contracting characteristic of expectations of the U.S. interest rate and the safe status of the Yen. This pair will be affected by the divergence of interest rates.
GBP/JPY
It is a high-volatility pair and can show great significant movements due to the relationship between the UK’s economic policy and Japan’s monetary policy. It reacts fast to UK economy news. This pair is appropriate for experienced traders who are looking for big moves. It has daily moves of about 150 to 200 percentage in points (pips) on average.
GBP/USD
This pair is greatly influenced by the U.S and UK economic news and FOMC decisions. It is a suitable pair for intraday traders. It reacts strongly to US news and Bank of England announcements. Its daily pip range is between 100 and 150 pips. As a trader, if you are seeking fast and careful moves, then this pair is ideal for you.
AUD/JPY
This is a volatile pair during the Asian and London overlapping trading periods. It is affected by the risk and commodity sentiment. It provides moderate volatility, making it more suitable for controlled trades.
Which Pairs To Avoid
You should avoid pairs having wider spreads, lower liquidly and higher transaction costs as they are risky. They can have great price swings with the release of the FOMC statement. Here are the pairs you should avoid or trade cautiously to minimise losses.
USD/CHF
It is a low-volatility pair and also a safe-haven pair, that is, it will hold its value during market uncertainties. If you are looking for high movements that it is not ideal for you. However, you can use it for hedging strategies.
USD/CAD
This pair’s volatility is related to the oil prices. So, if you are not interested in trading depending on oil price changes, it is better to avoid it.
EUR/CHF:
It has less chance of having large swings due to its low volatility. So, you will have less chance of making a quick profit from this pair. Therefore, you should avoid it.
EUR/GBP:
It is a less volatile option, though it is influenced by European and UK economic news. The pair’s outcome is not directly influenced by FOMC decisions.
AUD/NZD
It is a stable pair as both currencies are influenced by China-related factors. It is not influenced by the U.S monetary policy.
When choosing the pair, you must focus on sessions having peak liquidity like London and New York overlaps. You should always have a risk management strategy in place. To manage exposure, it is better to start with smaller lot sizes. A combination of news awareness and technical analysis will give you a good outcome.
Conclusion
Trading volatile forex pairs can be both advantageous and difficult. While the chance of more profits is present, at the same time, traders need to have a good risk management strategy to deal with uncertain market conditions. You must remember that the volatile forex pairs are significantly affected by geopolitical developments, market sentiment and economic status. So, it is necessary to keep up with the new developments and the forex volatility report to anticipate the market moves and make informed decisions regarding forex trading.
