FOMC Meetings: Everything Forex Traders Need to Know to Profit
As an investor, being aware of the dates of the upcoming Federal Open Market Committee (FOMC) meetings is key to making informed trading decisions.
FOMC meetings are key financial events and are among the most high-impact dates on the economic calendar. The Federal Open Market Committee meetings are vital to forex traders because this is when the US Federal Reserve announces their decision on interest rates. This announcement has a significant impact on the US dollar and, implicitly, all USD currency pairings. When you know the FOMC meeting schedule, you will be able to minimize your risk and maximize your profit based on your prediction of the outcome.
Digging up all this information on your own, though, can take time. That’s why we’ve done all the hard work for you. Below, you’ll discover everything you need to know about FOMC meetings, including the schedule, so you can develop effective forex trading strategies.
What Is the FOMC?
The FOMC, or Federal Open Market Committee, is the Federal Reserve System’s body for monetary policymaking.
In December 1913, the Federal Reserve System (“the Fed”) was created by President Woodrow Wilson and the US Congress to act as the Central Bank of the United States.
The Fed’s purpose is to try to achieve stable prices and moderate long-term interest rates, while maximizing employment. Generally, the FOMC enacts policy by altering short-term interest rate levels based on economic outlook changes. Since 2009, the FOMC has also used large-scale purchases of securities to improve economic conditions and support financial recovery by lowering long-term interest rates.
The Federal Reserve controls three monetary policy tools: reserve requirements, the discount rate, and open market operations. These allow the Fed to influence the supply of and demand for balances held at Federal Reserve Banks by depositary institutions, and thus alter the interest rate.
In turn, the FOMC rate decision has a significant effect on other economic variables, including foreign exchange rates, short-term interest rates, the price of services and goods, and even employment. The main FOMC meetings take place eight times per year, but they hold other meetings as necessary. The Committee publishes the minutes of these regular meetings three weeks after the policy decision’s date.
Why Are FOMC Meetings Important to Forex Traders?
Many traders use fundamental analysis when trading the financial markets, and economic indicators play a key role in this. The FOMC’s decisions on interest rates have a significant effect on the US dollar. Thus, as a forex trader, it’s vital to take into account the outcomes of these meetings so you know what forex trading strategy to adopt.
Being aware of the scheduled dates for FOMC meetings and knowing whether there is a Fed meeting on the day allows you to be prepared for the inevitable volatility that will occur in the markets. It will also allow you to make an informed decision regarding your strategy. You might prefer to steer clear of the market until the FOMC meeting result is published, or you might prefer to take the risk of using the predicted outcome to place your trade.
Knowing the dates isn’t enough, though. You also need to monitor the FOMC by reading FOMC minutes and checking out any announcements. These can often be an important clue regarding the possible evolution of the US dollar in the near future.
For example, if the FOMC states the Fed is adopting a dovish stance, you might consider shorting the USD and vice versa if they adopt a hawkish stance.
What Does a Dovish Stance Mean?
When the Fed states their stance is dovish, this means they are attempting to protect the nation from deflation and avoid economic contraction. Thus, the Fed implements various policies and strategies designed to stimulate the economy and to stop prices from dropping too low.
One frequently used approach is to drop interest rates. This encourages people to spend money and business to expand because loans are cheaper.
What Does a Hawkish Stance Mean?
A hawkish stance is the opposite of a dovish one, and it means that the Fed is attempting to keep the inflation rate in check, so it doesn’t skyrocket.
While economic growth is generally a good sign, if the rate is too fast, it can cause problems. When the economy grows too quickly and inflation exceeds the target, prices go up and people spend less money. Eventually, this leads to the economy slowing down.
To keep inflation in check, the Fed enacts various policies, one of which is to raise the interest rates. When interest rates rise, borrowing becomes more expensive. Consumers will, therefore, spend less borrowed money, while businesses will limit their expansion plans. The key is to achieve balance so that the economy isn’t growing too quickly, but it isn’t stagnating either.
How Dovish or Hawkish Stances Affect Forex Traders
The Fed’s stance is usually announced after the FOMC meeting. It’s important because it can be a vital clue to a forex trader regarding the US dollar’s evolution. For example, if the Fed announces a dovish stance, you know there’s a good chance they will lower interest rates. A lower interest rate might reduce the value of the US dollar, which means a short position might be a good idea.
Remember, though, that many other factors influence the value of a currency. Plus, if the reduced interest rate is still higher than other countries, the decline in the US dollar’s value might not be as significant.
Conversely, if the Fed adopts a hawkish stance, they will likely hike up interest rates. This means a stronger US dollar as an increasing number of people want to take advantage of the better rate and will convert their currency into USD. Thus, opening a long position might be your best bet.
Who Are the Members of the FOMC?
The Federal Open Market Committee has 12 members. Of these, seven are members of the Federal Reserve System’s Board of Governors, while the remaining five are Federal Reserve Bank presidents.
The Chair of the Board of Governors also acts as the chairman of the FOMC, by tradition. The Federal Reserve Bank of New York’s president holds the position of vice chairman for the FOMC.
The Federal Reserve Bank of New York’s seat is the only permanent position. The other four presidents serve for one year on a three-year rotating schedule. Thus, every year, a new Federal Reserve Bank president is chosen from the following geographical groups:
- Richmond, Boston and Philadelphia
- Chicago and Cleveland
- Dallas, Atlanta and St Louis
- Kansas City, San Francisco and Minneapolis
This system ensures that all areas of the United States are represented in the FOMC. Even though the remaining seven presidents of the Federal Reserve Bank are not designated FOMC members, they still attend the meetings and provide their input.
In the FOMC meetings, developments in global and local financial markets are discussed, as well as financial and economic forecasts. All participants share their views on the most beneficial monetary policy and the state of the economy. However, only the designated members of the FOMC can vote on which policy will be adopted.
FOMC 2019 Members
Below is the list of the members of the FOMC in 2019, along with their alternates:
|Designated Members of the FOMC in 2019||Alternate Members of the FOMC in 2019|
How Many FOMC Meetings Are There Per Year?
Regular FOMC meetings are scheduled eight times per year, with one occurring approximately every six weeks. However, the Federal Open Market Committee also holds unscheduled meetings when necessary to review recent financial and economic developments.
Usually, the FOMC meetings only last for one day. However, in June and July, and January and February, the meetings last for two days, during which longer projections of the GDP, unemployment rates and inflation rates for the year are presented.
The Committee issues a policy statement after each scheduled FOMC meeting to sum up their current economic outlook. It also includes any policy decisions that have been made at the meeting. The chair of the Federal Open Market Committee holds four press briefings every year following the FOMC meeting. At these briefings, he presents the FOMC’s economic projections and explains the context in which the policy decisions have been made.
Complete FOMC meeting minutes are published three weeks after each scheduled meeting. It is possible to read a complete transcript of every FOMC meeting from when it is published until 5 years after the meeting.
FOMC Meetings in 2019
The schedule of FOMC meetings in 2019 is as follows:
- January 29 – 30
- March 19 – 20*
- April / May 30 – 1
- June 18 – 19*
- July 30 – 31
- September 17 – 18*
- October 29 – 30
- December 10 – 11*
*Meeting associated with a Summary of Economic Projections and a press conference by the Chair.
How to Trade FOMC Announcements
Most successful forex traders look for key dates, like the FOMC meeting, on the economic calendar to inform their trading strategy. However, the way in which individual traders use this information can vary considerably.
Some investors pay close attention to the Fed calendar for upcoming FOMC meeting dates because they prefer to avoid trading. Until the final decisions of the FOMC are made public, asset prices tend to fluctuate unpredictably. This leads to a higher level of risk due to market volatility, which makes it easy to lose money.
On the other hand, other investors thrive on the excitement of trading the volatility in the market during these key announcements. They have a higher appetite for risk and will open a position based on the predicted outcomes of the release, hoping to make significant profits.
You can use several strategies to trade the FOMC, but one of the best is to open a 5-minute S&P 500 chart and plot the 200 and 21 EMAs (exponential moving averages). When the FOMC meeting’s scheduled time arrives, you’ll generally see a large initial move in one direction. This is usually called Wave A and represents the true direction in which the market wishes to go. However, it’s important not to execute a trade yet.
Following this initial large Wave A move, a retracement will happen, called Wave B. This will take the market at least to the 21 EMA and is a “fake” move. You should only enter the market once the S&P has reached the 21 Exponential Moving Average, with an open target and a 3-point stop. Alternatively, you can scale into the trade at the 21 EMA with a half-size, adding the other half to the position at 200 EMA.
Wave C will then follow in the same direction as the initial Wave A. Once you’ve made 3 points on the trade, you should close half your position. This will bring the stop to break even. You should then apply a trailing stop for the other half of your position on the 21 EMA. This should allow you to make a good profit on your trade.
Make sure to use a very short-term chart such as a 1, 3 or 5-minute chart due to the volatility of market prices at this time. Should the pattern not play out as expected, it makes sense to avoid trading completely. Instead, wait until the forex market has settled down to place your trade.
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