When You Trade Currencies, Its All About The Central Banks

25 December 2016, 08:42
Ahmad Hassam

When you trade currencies, its all about central banks.

For example when you are trading USD/JPY, you need to keep an eye on the Federal Reserve (FED) and the Bank of Japan(BOJ).

FED policy mandate is to keep unemployment and inflation below 2% level.

Fixing unemployment stokes inflation. Fixing inflation stokes unemployment.

So there is a trade off. Bank of Japan policy mandate is to keep Yen weak.

This is done so that Japanese exports stay competitive in the global market.

Read this blog post in which I explain how central banks play the central role in the currency market.

Once you understand how these central banks operate and what are their mandates, you will better understand what the currency market is doing.

You need to understand the policy tools at the disposal of these banks.

European Central Bank (ECB) also wants to keep EURO weak.

ECB is keeping EURO weak by doing Quantitative Easing.

So don't expect a major rally by EURUSD in the near future.

Share it with friends: