Important Nuances to Consider Trading Monetary Policy Events Like the Fed
• Like other major fundamental themes, the strong monetary policy influence on FX action is not black and white
• The ECB highlighted one important wrinkle in monetary policy as a catalyst - speculation's reshaping
• Greater influence in change, distortions in risk appetite trends and the global picture all contribute
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The EUR/USD's reaction to the ECB rate decision last week signaled that the relative monetary policy fundamental driver so effective with FX wasn't a simple black-and-white catalyst. With a crucial Fed rate decision ahead, it is important to consider some of the more important nuances to this market mover to properly gauge its influence over the markets ahead. The key lesson learned in the European group's influence is that market expectations (speculation) can alter the impact of meaningful events, data or actual policy changes. Just as important a facet to this fundamental current is that there is more value in changes to perceived policy standing than there is in an existing position - hence why the clearly favorable yield from the Kiwi finds such a severe contrast to NZDUSD year-and-a-half bear trend. Furthermore, lopsided risk appetite in the market is exaggerating some ill-equipped carry trades; and sentiment itself is seriously exposed to a big picture shift in the view of global monetary policy. We discuss how to navigate this fundamental driver in today's Strategy Video.
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DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.