Central banks play an enormous role when it comes to what domestic stock markets will do. We’ve seen this recently in the United States when the Federal Reserve raised borrowing interest rates and the stock market took a dive in mid-December of last year. Looking at what will happen to currency exchange rates is a bit more complicated than this, but when central bank actions are interpreted correctly, it can have a profound effect on the results of your trading, regardless of whether you trade in the Forex marketplace or if you use binary options to tackle currencies.
This coming week, there are a few major central banks that will be publishing minutes from their meetings, and this can lead us to information on what they are thinking as far as future rate hikes, or drops, will go. The United States Fed minutes will be released on Wednesday, April 6th, and if everything goes as expected, not much is likely to change in either the U.S. stock market, or with the fundamental information concerning the U.S. dollar. Fed Chair Janet Yellen has recently reinforced a dovish tone for the markets, meaning that there’s not much of a chance that rates will go up soon. This should help to maintain the status quo of everything going on in the U.S., but that only creates a neutral feel for the dollar. If the stock markets keep seeing the gains that they have been experiencing, the dollar will begin to lose value, setting it up for short term losses against stronger currencies.
Central banks like Japan’s and the European Central Bank should be watched this week. The ECB will be likely to make an announcement this week, and they have been consistently cutting rates. If they drop rates yet again, then this could set the euro up for a major move against the USD. The Bank of Japan has also been cutting rates, and any move by them would also set up the yen for major gains against the USD. The BoJ doesn’t have anything scheduled for release this week, but any surprise move may cause the yen to act against the USD. Watching what happens here will give you guidance with what you should do with your trades. A move giving one currency strength against a neutral currency should be strongly considered for trades, even if you don’t have a lot of experience with that particular currency pair. Using a low risk type of trading tool, such as a binary option, can help you to alleviate some of the risk that you take on with this, as long as you time your expiries well.
There are going to be a lot of factors that need to be evaluated along with these minutes. China is seeing growth in its manufacturing, for example, and this is probably something that most banks haven’t taken into account as of their last meeting, thanks to the fact that the information just came out. Also, U.S. employment rates are at a healthier than expected level, making it so a rate hike is more likely than it was before the information was released late last week. So, whatever the market decides is the appropriate reaction to these things, your long term trading strategies should take this extra information into account in order to cover your bases as completely as you possibly can. There are all sorts of these types of events and data points that can impact a currency pair, but by looking at the bigger of these, you can have a more pointed approach as you decide upon a route.