Trade of the Week – USDJPY

Trade of the Week – USDJPY
Traders Profit from a FED Rate Hike!

Trade of the Week – USDJPY

We had the long awaited FOMC meeting in the USA last Wednesday. The FOMC (Federal Open Market Committee) meets eight times a year and they decide on what action they will take to maintain a strong economy.

The Main Highlights:
  • The base interest rate was increased in the USA by 0.25% (From 1.5% - 1.75%)
  • The FED will target 3 interest rates rises in total for 2018
  • • Inflation forecast for 2018 was set at 1.9%

After an initial spike up, the USDJPY proceeded to fall sharply over the next few hours and continued its decent downwards throughout the following day.
When a country increases its interest rates this is considered good for their currency and we would normally expect it to rise. In this instance the dollar went DOWN not UP!

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If your planning on trading the news you need to understand that big moves only happen if the unexpected happens NOT THE EXPECTED.

When the expected happens the price will generally go either sideways or in the opposite direction. In this case the interest rate rise of 0.25% was so expected by the market that when it was announced it had no impact at all.

What really pushed the dollar down was the fact that the new Fed Chair, Jerome Powell, decided to stick with only 3 rate hikes this year instead of 4.
This was more of an UNKNOWN to the market than the rate hike and it was this that caused the dollar to fall! If Powell had decided to announce 4 rate hikes in the USA this year this would have been perceived by the market as very hawkish and a big dollar rise would have been a certainty.

News trading can be a tricky endeavour but if you want to give yourself the best chance to bank profits on these events you need to make sure you understand how markets interpret news and how the price reacts to it in different circumstances.

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