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Central Bank Policy Statements
We just have a quick question here from Werner. He wants to know where he can find central bank policy statements, as he’s realized how important they are to currency valuations and want to get used to reading through these statements and getting a feel for the tone when they actually occur.
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So, this is a great question, Werner, and great to see that you are proactively trying to learn about these type of aspects of trading, as it is a very integral part of the overall and fundamental picture.
Now, there’s a couple of ways you can get your hands on the statements. The first and probably the easiest way, especially if you do it before an upcoming meeting, is just to pop on over to the central bank’s website and find their most recent statement. Most of the central banks will have very user friendly websites that make it easier for you to find the statements. Apart from the Federal Reserve, I feel their website is really lacking when compared to something like the BOC or the RBA or the RBNZ, for example.
Now, you can just simply type into Google, type in something like BOC or Bank of Canada monetary policy statement or FOMC monetary policy statement. And this is basically what it looks like on the website itself. So this is the Bank of Canada website. There you have their most recent monetary policy press report.
This is an example of the one from the FOMC. Here we also have the website for the RBA. And if you actually open up the statement itself, you’ll see it’s quite a lengthy one, a very big document that you need to normally work through. Now, if you can’t find a statement on the bank’s website, you can always just do a quick, you know, as we said, Google search for the statement itself.
So if you land on the website itself, but you can’t find it, just type in monetary policy statement, and you should be able to find it quite easy. Now, when you’re going through these statements, as you’ve seen from this one, some of these statements can be very, very long. This one over a hundred pages. If we just open up the one from the RBNZ, you can see over 60 pages now. The good news is you don’t have to go through each and every one of these 30 pages. Just focus on the opening statement or let’s call it the policy assessment.
On the RBA one, you’ll see there is an overview section. When you get to something like the BOC, you can see there is a much bigger statement, but this is the opening statement of the monetary policy report. So just read that opening statement for most of them, that should normally be enough. Now, having said that, sometimes you might want to need to see more detail.
For example, the Federal Reserve, they normally release their summary of economic projections. They release that four times a year. And that is definitely something that you’ll want to read as well. It contains the Fed’s projections for things like growth and inflation, and also very importantly, includes the Fed’s dot plot, which is something I’m sure you’ve heard about before as well.
You can also compare that to something like the ECB, which normally releases their staff economic projections. So when these type of things are released, definitely something you wanna pay attention to as well. So that is basically the first way of getting access to them, is just by going to the website. Now, on the day of the central bank event itself, you can just go to the website and wait for the statement to be released on the bank’s site. And of course, then just go through it and read through it.
However, I would argue that it might not be the best course of action for an actual policy event that you’re planning to trade. Ahead of a central bank event, the market will really have a consensus idea, right, of what they think the bank will do and what they think it’ll say. And if there are key focus areas, like, let’s say, inflation or forward guidance, or, you know, what the bank has to say about a specific policy like negative rates, for example, it’s only those very contentious or, let’s call it, important or highly anticipated topics that will garner the most attention in the statement. And as the market knows this in advance, you’ll be able to access the most important comments the fastest, by just simply using something like the audio squawk, the forex’s audio squawk in the terminal.
So the analyst desk, they will basically get updates on the most important points very fast, point by point, and they’ll basically squawk them out audibly as they receive it. Obviously they’ll type it out as well. But the typing can take a little bit longer than the actual audio squawk, so you can get the info very fast if you just listen to the audio squawk.
It will be much quicker than actually going through each one of those statements yourself. Now, apart from that, you can also consider using something like Xenith, which also has a type of feed, a newsfeed. Let me just quickly drag that feed over for you. So you’ll see here on the left hand side, we have a newsfeed.
Now, what normally happens is those point by point topics will usually get populated in this feed, so you can actually read through them as they are released in the Xenith terminal. That’s also something that you can use. But again, I would argue that the audio squawk will be the fastest way for you to actually get that information and use it in a tradable way. The most important thing is to be prepared, right, before the meeting, with all the most important points that you know the banks will be looking at or the market are we looking at, rather.
Know what those are, and then when those statements comes out and there’s a change, obviously, you’ll know whether it’s tradable or not. A recent example is that there’s lots of speculation of whether the Federal Reserve will adopt something like negative interest rates in the next few months, right. So, we know that majority of bank members from the FMC have rejected the idea.
So if the bank says in a statement, for example, that rates won’t go negative, that won’t really be important, because we already know that. Now, if they come out and they say something in the lines of the Federal Open Market Committee has discussed various policy measures, including negative short-term interest rates, and they feel that the policy tool deserves a closer look and consideration as a possible monetary tool to use, if you get that type of statement, you know definitely that’s gonna be massively market moving and you should see lots of dollar downsides.
So that’s just an example of you haven’t really, you don’t need to read through the entire thing, just focus on those main points that you know the market will be looking at that will be market moving. So, Werner, I hope that helps with your question. Any other questions, of course, just let us know.