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Fed Meeting Preview: US Dollar Volatile Around FOMC Decisions

Fed Meeting Preview: US Dollar Volatile Around FOMC Decisions

2019-12-10 23:30:00
Rich Dvorak, Junior Analyst
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FOMC RATE DECISIONS & US DOLLAR VOLATILITY: EUR/USD, GBP/USD, USD/JPY, USD/CAD, USD/CHF, AUD/USD

  • The Federal Reserve is due to release its latest monetary policy update Wednesday, December 11 at 19:00 GMT and will be followed by a press conference from Fed Chair Jerome Powell
  • Fed meetings are historically associated with above-average volatility in the US Dollar and brings DXY Index price action and the major USD forex pairs into focus
  • Check out this article on US Dollar Implied Volatility & Trading Ranges headed into the upcoming FOMC decision and release of the central bank’s latest economic projections

Forex traders should be on high alert whenever there is a FOMC interest rate decision on deck judging by historical currency volatility in the US Dollar surrounding monetary policy updates from the Federal Reserve. Data pulled on major US Dollar currency pairs since 2008 reveals that USD price action is particularly elevated surrounding a Fed monetary policy update.

In fact, the average change (absolute value) in the 24-hours before and 24-hours after a FOMC rate decision is noticeably higher compared to the average change on any other given day for EUR/USD, GBP/USD, USD/JPY, USD/CAD, USD/CHF and AUD/USD.

CHART OF AVERAGE US DOLLAR PRICE CHANGE (ABSOLUTE VALUE) AROUND FED MEETINGS

Chart of US Dollar Price Volatility Around Fed Meetings

Another way to reflect US Dollar volatility around regularly held Fed meetings is by capturing the daily trading range on a FOMC decision day and comparing it to its respective 30-day average true range (ATR). Once again, we find that the US Dollar typically experiences above normal episodes of volatility in response to FOMC rate decisions.

CHART OF EUR/USD PRICE VOLATILITY & FOMC RATE DECISIONS

EUR/USD Price Chart US Dollar Volatility and FOMC Rate Decisions

CHART OF GBP/USD PRICE VOLATILITY & FOMC RATE DECISIONS

GBP/USD Price Chart US Dollar Volatility and FOMC Rate Decisions

CHART OF USD/JPY PRICE VOLATILITY & FOMC RATE DECISIONS

USD/JPY Price Chart US Dollar Volatility and FOMC Rate Decisions

CHART OF USD/CAD PRICE VOLATILITY & FOMC RATE DECISIONS

USD/CAD Price Chart US Dollar Volatility and FOMC Rate Decisions

CHART OF USD/CHF PRICE VOLATILITY & FOMC RATE DECISIONS

USD/CHF Price Chart US Dollar Volatility and FOMC Rate Decisions

CHART OF AUD/USD PRICE VOLATILITY & FOMC RATE DECISIONS

AUD/USD Price Chart US Dollar Volatility and FOMC Rate Decisions

The outcome of the analysis is the same irrespective of how the data is crunched to reflect US Dollar volatility surrounding a FOMC rate decision: the central bank’s monetary policy updates serves as a serious catalyst for USD price action.

That said, forex traders should thoroughly consider implementing stringent risk management techniques when trading the US Dollar around a Fed meeting – like placing tighter stops or trading smaller position sizes.

FOREX TRADING RESOURCES

-- Written by Rich Dvorak, Junior Analyst for DailyFX.com

Connect with @RichDvorakFX on Twitter for real-time market insight

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

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