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FOMC: Predict the price
and win up to USD 1,000

Check out our expert tips and predict 
the impact of FOMC news
Predict the price

Trading in CFDs and generally leveraged products involves substantial risk of loss and you may lose all of your invested capital.

The US Federal Reserve System's influential Federal Open Market Committee (FOMC) is set to hold its first meeting of the year, bringing with it major opportunity and risk. Our trading expert, Stanislav Bernuhov, tells you how to make the most of your chances below.  What's more, we're also holding a contest in which you could win USD 1,000 in cash and bonus!

Tips From Our Expert

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Stanislav Bernuhov
A professional trader and trading coach with more than 12 years of experience, Stanislav Bernuhov specializes in various trading methodologies, including price action, market auction theory, and unconventional chart analysis. Currently, he manages his own capital and mentors traders worldwide.

FOMC Introduction

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Meetings of the Federal Open Market Committee (FOMC) are some of the most anticipated events in forex trading world. Part of the US Federal Reserve, the group meets eight times a year to define interest rates. Since interest rates largely reflect the strength of the US dollar, this process has a huge impact on many currency pairs and the forex market in general. As a general rule, the higher the interest rates are set, the stronger the dollar will become. As a result, FOMC meetings offer both big opportunity and big risk.
Trading Before The News Hits
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Watch market behavior one to two weeks before the announcement

Typically, traders make forecasts about what impact the FOMC meeting will have on interest rates long before the announcement is actually made. From employment data to inflation statistics, traders assess a variety of news sources and make their own conclusions about whether the rate is likely to be raised, lowered, or left unchanged.

Forecasts like these create what I call an “expectation rally”. I’ve demonstrated an example of this in the chart below. In this case, the price goes higher due to expectations and rumors, not due to real data.

 
The idea behind this strategy is to “buy the rumor, sell the news”. Simplified, we should look to trade when uncertainty is high (when the expectation rally is just getting started), and exit when the uncertainty is gone (when expectations have built up and there is general consensus about what is going to happen).  

If you do chose to pursue this strategy, you should keep in mind one very important thing; make sure you exit your trade before the FOMC makes its announcement. The reason is this: after the news comes out, many traders will be exiting their own trades too and the market may move against you. If this happens, you will rapidly lose your potential profit.
Trading During The Announcement
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Follow the liquidation sell-offs (or buybacks)
It is possible to come out ahead if you do chose to trade during or just after the FOMC announcement. Just bear in mind that you will need focus, fast reaction time, and very careful planning to come out ahead - and even then it can be quite risky. Expectation rallies are usually liquidated quickly, and you should therefore be near your monitor when it happens.
Let’s look at what happened after the FOMC decision announcement on September 20, 2017:

This announcement was notable due to the fact that the interest rate was not changed, contrary to expectations. This meant that traders, who had previously been purchasing EURUSD, were forced to liquidate their positions.

How could one trade in this situation?

The idea is to wait for the price to break after the announcement, then enter the market during a minor rally (but while the overall trend is still downward). You then exit after the price stabilizes.

Remember, that jumping into a rally too early after the news is usually not a good option: volatility is very high and spreads may be widened, so your risk would be increased too.

Trading After The News
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Reduce Risk By Letting The Markets Settle First

What if you want to avoid the high volatility - and thus the high risk - associated with the buildup and immediate aftermath of the FOMC’s meeting? Your best bet will be to wait for the markets to calm down following the FOMC announcement before trading again.

How long should you wait? It’s typically best to take one to two days to let emotion work itself out of the market and then to analyze the situation.

The first thing you should do is to visit official website of the Federal Reserve and to read the text of the speech from the press conference. You may not have enough experience to interpret this information correctly, so you should also refer to third-party resources such as Bloomberg to see what top analysts are thinking about the FOMC’s decision. In essence, you have to get a sense of the market sentiment, which can often be more of an art than a science.

Let’s take the Fed governor’s speech from April 2017, as an example. In the text we find largely negative language: “...the federal funds rate is likely to remain, for some time, below levels that are expected to prevail in the longer run”. The US Dollar reacted with a decline against the Euro, but later rebounded to a support area, giving an opportunity for a trader to buy EURUSD with a smaller risk.

Expert Forecasts

Don't just take our word for it. Here are some additional resources to help you discover more about the opportunities and risks surrounding the FOMC announcement.
UOB   January 4, 2018

US FOMC Minutes: Divided Over Number Of Rate Hikes In 2018

The Dec 2017 FOMC minutes showed that most of FOMC officials backed continued gradual rate hike increases and that future rate increases will be guided by inflation outlook and fiscal stimulus.

+ READ MORE
THE NEW YORK TIMES   January 3, 2018

Fed plans to raise rates in 2018 but lacks consensus on frequency 

The Federal Reserve has entered 2018 without a clear plan for raising its benchmark interest rate and with the added uncertainty of an imminent change in its leadership.

+ READ MORE

Community Forecast

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Bullish
%
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Bearish
%
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Neutral
%

Winner Announcement

Thanks to the 893 traders who participated in the FOMC Market Forecast Contest!
*Terms and conditions apply
  Place Email Submitted Price Submission Date Prize
40x48-cup-01.png First lan***73@gmail.com 1.2412 1/29/2018 14:54:00 USD 500 cash + USD 500 bonus
40x48-cup-02.png Second tcl***88@126.COM 1.24072 1/25/2018 20:38:00 USD 150 cash + USD 150 bonus
40x48-cup-03.png Third ad***abbas15690@gmail.com 1.2405 1/23/2018 15:58:00 USD 50 cash + USD 50 bonus
Once you've completed your prediction, make yourself eligible to win the prize by opening an account with Exness!