ECB Meeting: What Forex Traders Must Know to Make a Profit
Every forex trader needs to know the key dates in the annual economic calendar to minimize risk and maximize profitability.
One of these key economic events is the ECB meeting, which plays a major role in determining the Eurozone’s monetary policy. The Eurozone is made up of 19 EU countries, so the monetary policy adopted at these ECB meetings will have far-reaching effects.
However, knowing the date isn’t enough. You need to understand why the European Central Bank meeting is important and how it works. This way you can make an informed decision regarding the forex trading strategies you implement.
Instead of you wasting time by scouring the internet, we’ve done all the hard work and compiled the information you need in one place. Below, you will discover everything you must know about the ECB meeting so you can trade effectively, even if that means not trading at all.
What Is the Role of the ECB?
The ECB or the European Central Bank is the joint central bank of the 19 countries within the European Union that use the Euro as their currency. These 19 countries make up the Eurozone, which is one of the biggest monetary regions in the world. The ECB administers the monetary policy for this area.
The primary objective of the ECB is to maintain stability in pricing within the Eurozone over the medium term. In 1998, one of the decision-making bodies of the ECB, namely the Governing Council, stated that price stability equated to keeping inflation below 2% per annum.
To achieve this objective, the European Central Bank is responsible for various tasks, including:
- Setting and implementing Eurozone monetary policy
- Handling forex operations
- Promoting the smooth operation of the infrastructure of the financial markets by maintaining the system of payments
- Consulting on pertinent EU and/or national legislation
- Collecting and establishing statistics
- Issuing euro banknotes
- Ensuring financial stability
- Supervising relevant banks in the Eurozone
Price stability is key to job creation and economic growth, which are two of the major objectives of the EU. Therefore, it is one of the most essential contributions that monetary policy can make.
Three of the key decisions the ECB makes include the minimum bid rate, the deposit rate, and the marginal lending rate.
The ECB’s Decision-Making Bodies
The ECB has three decision-making bodies, namely the Executive Board, the Governing Council, and the General Council. Each of these bodies have their own responsibilities, though they all work towards ensuring that the mandate of the ECB is fulfilled.
The Governing Council
The Governing Council is the lead decision-making body of the Eurozone and is made up of the six members of the Executive Board, allowing with the 19 governors of each Euro area country’s National Central Bank.
The Executive Board
The Executive Board is tasked with implementing monetary policy, as well as being in charge of the bank’s daily operations.
The General Council
The General Council deals with any issues pertaining to a country’s transition to the euro, such as fixing the rate of the currency the euro is replacing. This body will be dissolved after all EU member states have adopted the euro.
Why ECB Meetings Are Important for Forex Traders
Many forex traders employ fundamental analysis when they trade on the financial markets. Economic indicators are a critical component of fundamental analysis. They also have a significant impact on the forex market, often leading to significant volatility right before and when they are made public.
Of course, economic indicators have varying degrees of importance. ECB meetings are critical because vital decisions are made pertaining to monetary policy and interest rates, which can have a significant effect on the euro.
When trading in foreign currencies, knowing when the ECB meeting is scheduled is essential because the forex market becomes exceptionally volatile during the time leading up to the meeting, and right after it. Investors can expect to see the value of Euro currency pairings moving rapidly until any decision the ECB Governing Council has made is announced.
Knowing the European Central Bank meetings’ schedule means that you can better prepare for the upcoming volatility instead of being caught by surprise.
Thus, if you have a low risk tolerance, you can close all your open positions and wait for the market to settle down. Conversely, if you are a forex trader with an appetite for risk, then you might want to trade the volatility. However, trading in a volatile forex market is completely different to normal trading, so knowing when the volatility will occur is essential so you can plan your forex trading strategies accordingly.
How ECB Meeting Decisions Can Affect Forex Traders
You also need to keep an eye on the activity of the ECB, including monitoring predictions, reading up on the minutes of ECB meetings, and checking the announcements. This information is critical because it will determine the direction the market will move.
You need to know what market expectations are if you plan to trade the volatility. Initially, the market will move based on the predictions. Once the announcement is made, though, price will move rapidly based on how accurate the forecasts were.
When the market settles, the announcements made by the ECB will play a role in the direction of price and will inform how you should trade.
If the ECB plans to raise interest rates, for example, then the euro is likely to increase in value. Increasing interest rates is often a sign that the economy is going strong and the ECB is worried about it growing too fast and inflation outpacing their targets. So, the ECB raises interest rates to temper inflation and to avoid the risk of an economic slowdown caused by prices rising too quickly. This is also known as a hawkish stance.
A euro that is likely to increase in value is an excellent opportunity for a long trade.
If the ECB announces that interest rates will remain unchanged and no major changes are made to the policy, the euro will remain relatively stable. You will still see a little volatility if most of the predictions were that the ECB would make a major decision. It won’t be as pronounced, though, and the market will settle more quickly.
On the other hand, if the ECB decides to lower interest rates, it could be a sign that the economy is not growing fast enough. By lowering interest rates, the European Central Bank is trying to stimulate the economy and encourage people to spend money and businesses to expand. This is also known as a dovish stance.
When the ECB lowers interest rates, there is a chance that the euro could lose some of its value. This could be an excellent opportunity for you to short the euro.
Who Is Part of the ECB’s Governing Council?
The ECB’s Governing Council has 25 members, six of whom are Executive Board members, while the remaining 19 are the Governors of each Eurozone member country’s National Central Bank.
The members of the Executive Board have permanent voting rights, but the National Central Bank Governors have rotating rights. The Governors from the countries in the first five spots share four votes, while the other 14 share 11 votes. The Governors use the voting rights in turn, based on a specific monthly rotation.
However, this rotation system has no effect on the discussions during the ECB meetings because everyone has the right to speak.
The ECB’s Governing Council in 2019
Below is a list of the members of the European Central Bank’s Governing Council in 2019:
Executive Board Members
National Central Bank Governors
European Central Bank Meeting Dates in 2019
In normal circumstances, the ECB’s Governing Council holds two meetings every month in Frankfurt am Main in Germany at the ECB premises.
Every 6 weeks, the Governing Council holds a monetary policy meeting, when they are charged with assessing monetary and economic developments within the Eurozone and making decisions about monetary policy. At non-monetary policy ECB meetings, the Council meets to discuss other responsibilities and tasks.
The President and the Vice President of the ECB hold a press conference after every monetary policy meeting to explain any policy decisions that have been made. The ECB also publishes regular accounts of the policy-making meetings before the next meeting is held.
ECB Meeting Dates for 2019
Below you will find the dates of the ECB meetings pertaining to monetary policy:
- January 24th
- March 7th
- April 10th
- June 6th
- July 25th
- September 12th
- October 24th
- December 12th
ECB Meeting Dates for 2020
Below you will find the dates of the Governing Council meeting of ECB in Frankfurt pertaining to monetary policy:
- January 23th
- March 12th
- April 30th
- June 4 (external meeting hosted by De Nederlandsche Bankth
- July 16th
- September 10th
- October 29th
- December 10th
Strategies for Trading Economic News Such as The ECB Meeting
The Forex market is especially prone to rapid and short-term movement around the time of important economic news releases, such as the decisions made at the ECB meetings. These announcements not only affect the currencies of the countries in question, but also has a knock-on effect around the globe, and will influence currency pairs.
If you want to reduce risk and increase your potential for profit, then you must know the dates when the information will be released. You should also plan what forex trading strategies you will use for the fast-moving market that occurs around this period.
Remember that while some investors choose to stay out of trading at this time, others are keen to capture breakouts in this volatility in an attempt to increase their profits. So, staying out of the market is just as valid a strategy as anything else.
If you are looking for a simple but effective Forex trading strategy to trade economic news releases, you could try the Whipsaw technique. It is one of the most popular trading strategies around economic announcements like the ECB meeting.
One of the issues with trading the news is that high market volatility can make it difficult to determine how large your stop loss should be.
In a whipsaw, prices move up, stopping out short traders, and then move down, stopping out long traders. The trading strategy involves opening two trades – one long and one short – which are as close as possible to the middle price of the move that is leading up into the whipsaw.
Set a take profit on both trades of around 10–15 pips to limit your risk. However, don’t set a stop loss because the take profit will become the stop loss. Trading without a stop loss means you won’t be stopped out of the market, regardless of the direction of the market.
This strategy only works for high-impact releases such as an ECB meeting, which indicates that a whipsaw move is likely to occur. It is also vital that the market is moving within a tight range before the news release for the whipsaw to be a possibility.
Another way to maximize profits is to use multiple currency pairs – for example, all USD or all EUR pairs – when utilizing this strategy, as this spreads risk and creates more opportunities for success.
Take Action on ECB Meetings
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