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US Fed Interest Rate Decision

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United States

The FED meeting is held eight times a year, but only four of them are of particular interest to the markets, because these four meetings have the highest chance of announcing the new terms of the US FED monetary policy. Due to the low probability of algorithmic trading at the FED’s rate, the indicator is marked by a small number of our “stars”.

Features of the publication

One of the most important indicators
Four of the eight ones are most critical
Do not miss those ones which are with a press conference
The FOMC committee meets (it's the steering wheel of the Fed)

How to trade US Fed Interest Rate Decision

If the data exceeds the forecasts, USDJPY grows and vice versa.

It is a fairly critical indicator for volatility and is also the most important among all in our trading list. But it is not always attractive specifically for algorithmic trading. Trading algorithms use the math of the deviation of the actual level of the Fed's interest rate from its forecast value, that is, we need a surprise and the deviation of the fact from the forecast for the appearance of a signal, but the trouble is that the Fed does not like surprises! The Fed will always try to set up markets and expectations in such a way that they coincide with reality!

It would not be in the Fed’s interests to carry out the chaos in the market since stability is its main rule. Accordingly, we have a situation where the expectations of the markets almost always coincide with reality which alleviates the probability of the algorithmic trading.

Only four of the eight FOMC meetings (Federal Open Market Committee), as a rule, take place with the subsequent press conference of the Fed’s governor. Usually, only at such meetings, there are changes in monetary policy since after it the markets always need additional explanations from the Fed’s representatives! The minutes are read at the press conference, and there is also a block of communication with the press.

Since the Fed is always cautious, journalists can ask the most uncomfortable questions at a press conference, because their main task and work is to find out the Fed’s plans for the future. The Fed’s plans form the market sentiments.

As a rule, FOMC brings volatility not by surprise of change in the interest rate, but by its arguments in the minutes and at the press conference. At such moments, new market expectations can be formed as well as an increased volatility of the US dollar can be observed.

 

It is because of the low probability of algorithmic trading that the indicator is marked by a small number of our “stars”.

History of publications

Date:
18/12/2013
Signal:
Buy 3
Cons:
0.25
Fact:
0.25
Dev:
0.00
React:
40
Direct:
Up
Pair:
USDJPY
Others

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