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Foundational Trading Knowledge / DailyFX Education Walkthrough 4 / 10
DailyFX Forex Trading Course Walkthrough: Part Four

DailyFX Forex Trading Course Walkthrough: Part Four

James Stanley,

Forex Trading Course Walkthrough Talking Points:

  • This is the fourth of a ten-part series in which we walk through articles from DailyFX Education.
  • The aim of this series is simplicity while addressing some of the more important aspects of the FX market along with traders’ strategies and approaches.
  • If you would like to access the full suite of educational articles offered by DailyFX, you can get started here: DailyFX Forex for Beginners

Now that you have additional insight on analysis in markets, it is time to learn about some of the major players. Whether you’re focused on fundamentals or technical trading, these institutions can carry impact that shows up on your ledger.

Ever since the global financial collapse, central banks have had a key role in markets. Some economies are still dealing with its aftermath and currently have negative rates. Rates aren’t the only way that a central bank can impact the economy it leads, as intervention has been done in a number of new ways over the past decade in an effort to invigorate growth.

To learn more about how Central Banks Intervene in the Forex Market, click here to join us in DailyFX Education

Suffice it to say, central banks are forces that traders are probably going to want to know more about. The biggest and most widely-followed central bank is the Federal Reserve in the United States, charged with managing monetary policy for the US economy. The Federal Reserve has a dual mandate. The bank is charged not only with managing inflation, but also fostering employment.

The Federal Reserve

In Europe, the central bank representing the largest economy in the world is the European Central Bank, or ECB, which helps to set monetary policy for the 19 Euro member states that use the Euro as their currency. The ECB is still relatively new, but the bank’s impact is enormous given the fact that it is charged with managing the largest economy in the world (Europe).

The European Central Bank

The Bank of England is also widely followed and. In many ways, London, where the bank is headquartered, is somewhat of a starting point for FX. The BoE is often be widely watched around its rate decisions.

The Bank of England

The Bank of Japan is also highly interesting and, arguably, has employed some of the most experimental monetary policy measures since the start of ‘Abenomics’ in 2012. The BoJ has also often used the highly controversial measure of negative rates, with yet-to-be-known long-term impact. The central bank continues to fight decades of lagging inflation/deflationary forces. There are numerous interesting case studies around the BoJ.

The Bank of Japan

This insight into some of the major players can help your analytical approach. Bear in mind that with most central banks at or near the ‘lower bound,’ rate policy may not have much remaining impact at this point. However, central banks have recently started to engage in additional forms of accommodation that can still drive asset prices, even without the prospect of an interest rate change.

Real-World Application

To take this knowledge to the next level, find a central bank theme to incorporate into your approach and use it to build a series of trades (at least five) on your demo account. This can be a theme such as US Dollar weakness on the prospect of continued dovishness at the Fed; or it could be New Zealand Dollar strength on the prospect of a possible rate hike on the long-term horizon.

The key here is to try to incorporate a current market bias that’s helping to drive short-term trends and its expectations around central banks that can be incredibly impactful when they’re getting ‘priced-in’ to global markets.

--- Written by James Stanley, Strategist for

Contact and follow James on Twitter: @JStanleyFX

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.