Whenever the Federal Open Market Committee meets and releases its rate decision and its statement, it’s seen as one of the most important data releases in the markets in the currency markets. And it is, as sometimes there’s a real surprise that can have a huge impact on the markets.
Because of that the whole FX world goes crazy days before it and waits for the statement in anticipation of big moves in the markets. But actually most of the time these don’t happen as there is no big surprise in what the FOMC has to tell. Well yes, the markets almost always go crazy a few minutes before and after the statement is released but that’s more due to the lack of liquidity in the markets. Which is why it’s a good idea for most day traders to stay out of the markets around the release time and also shortly before the release due to a lack of both, liquidity and volatility.
Enough of the talk, let’s look at some stats! How do we get an idea about what happens on FOMC days? We simply get the dates of the all FOMC dates of the last 11 years, have a look at each of these days and compare them to non-FOMC days. That gives us 90 FOMC days we can look at.
Here’s the distribution of how many times the ATR (9 periods) the EUR/USD for example moves (open to close) on FOMC days:
Now we have some outliers here with 22 days of EUR/USD moving more than 1 time the ATR, which is 24% of FOMC days. But on average EUR/USD moved just 0.66 times the ATR on these days.
Compared to non-FOMC days where we have 12% of days moving more than 1 time the ATR and an average of 0.49 times the ATR movements it’s true that at least EUR/USD tends to move more on FOMC days than usual. The same is true for most other currencies related to the USD, but not so much for the crosses.
But this also shows us that most of the time it’s not that crazy. Yes, it’s 30% more action than usual and chances to get a move of more than 1 time the ATR are twice as high as on non-FOMC days. But still that only happened on one out of four FOMC days.
So don’t believe the hype and get too crazy on FOMC days, they’re not THAT different from any other day…unless the FED comes up with the unexpected ;)
CFTC RULE 4.41 - HYPOTHETICAL OR SIMULATED PERFORMANCE RESULTS HAVE CERTAIN LIMITATIONS. UNLIKE AN ACTUAL PERFORMANCE RECORD, SIMULATED RESULTS DO NOT REPRESENT ACTUAL TRADING. ALSO, SINCE THE TRADES HAVE NOT BEEN EXECUTED, THE RESULTS MAY HAVE UNDER-OR-OVER COMPENSATED FOR THE IMPACT, IF ANY, OF CERTAIN MARKET FACTORS, SUCH AS LACK OF LIQUIDITY. SIMULATED TRADING PROGRAMS IN GENERAL ARE ALSO SUBJECT TO THE FACT THAT THEY ARE DESIGNED WITH THE BENEFIT OF HINDSIGHT. NO REPRESENTATION IS BEING MADE THAT ANY ACCOUNT WILL OR IS LIKELY TO ACHIEVE PROFIT OR LOSSES SIMILAR TO THOSE SHOWN.
Editors’ Picks
EUR/USD flirts with daily highs, retargets 1.1900
EUR/USD regains upside traction, returning to the 1.1880 zone and refocusing its attention to the key 1.1900 barrier. The pair’s slight gains comes against the backdrop of a humble decline in the US Dollar as investors continue to assess the latest US CPI readings and the potential Fed’s rate path.
GBP/USD remains well bid around 1.3650
GBP/USD maintains its upside momentum in place, hovering around daily highs near 1.3650 and setting aside part of the recent three-day drop. Cable’s improved sentiment comes on the back of the Greenback’s irresolute price action, while recent hawkish comments from the BoE’s Pill also collaborate with the uptick.
USD/JPY edges up above 153.50 with all eyes on US CPI figures
USD/JPY appreciates above 153.00 but remains on track for a 2.4% weekly loss. Trading volumes remain subdued on Friday, ahead of the IS CPI release. The Yen remains supported by hopes of a stable government and calls for further BoJ tightening.
Editors’ Picks
EUR/USD: Yes, the US economy is resilient – No, that won’t save the US Dollar Premium
Some impressive US data should have resulted in a much stronger USD. Well, it didn’t happen. The EUR/USD pair closed a third consecutive week little changed, a handful of pips above the 1.1800 mark.
Gold: Metals remain vulnerable to broad market mood Premium
Gold (XAU/USD) started the week on a bullish note and climbed above $5,000 before declining sharply and erasing its weekly gains on Thursday, only to recover heading into the weekend.
GBP/USD: Pound Sterling remains below 1.3700 ahead of UK inflation test Premium
The Pound Sterling (GBP) failed to resist at higher levels against the US Dollar (USD), but buyers held their ground amid a US data-busy blockbuster week.
Bitcoin: BTC bears aren’t done yet
Bitcoin (BTC) price slips below $67,000 at the time of writing on Friday, remaining under pressure and extending losses of nearly 5% so far this week.
US Dollar: Big in Japan Premium
The US Dollar (USD) resumed its yearly downtrend this week, slipping back to two-week troughs just to bounce back a tad in the second half of the week.
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