Which Target Rate Announcement to Trade?

Which Target Rate Announcement to Trade?

With both the FOMC and the BoE announcing their target rate decisions this week, which one will likely produce the most movement?

Which Target Rate Announcement to Trade?
Which Target Rate Announcement to Trade? Getty Images

The FOMC is scheduled to release the Federal Funds Rate Wednesday at 2:00 pm EDT and, on Thursday at 7:00 am EDT, the BoE will be announcing the Official Bank Rate, as well.  While typically the FOMC creates the greater volatility in currencies, this week may be the exception and here's why.

According to the CMEGroup FedWatch tool, the probability for an August rate hike is only 3%.   Additionally, although a statement will be released, there is no press conference scheduled after the announcement. 

FOMC August Target Rate Announcement ProbablitiesHowever, the probability for a September rate hike is currently at 88.7%.  Based on the statement that is released on Wednesday and future economic data, the probability may increase or decrease.  Traders will be analyzing the FOMC statement for clues relating to the potential September rate hike.  

September Target Rate Announcement ProbablitiesWith no press conference and a low probability of a rate hike, the FOMC announcement may not produce the excessive volatility that it normally does.

The BoE rate announcement may be the volatile event this week.  The consensus is that there is a 90% percent chance of a 25 basis point rate hike.  The last rate hike was on July 14, 2016 and resulted in an immediate 245 pip up move (measured from high to low 15 minutes immediately after the announcement), which they rolled back on August 4, 2016, causing another almost 200 pip move down.

Currently, the GBPUSD daily chart is testing the prior lows from December 2017 and on each test buyers have entered and push price upwards.  Currently, it just made a higher low indicating a potential move to the upside.

GBPUSD Daily ChartLooking at the 720 minute chart, the ATR (blue cross) shows that price found support at 1.3090 and the next resistance level is at 1.3250 (white dots), which also coincides with the daily ATR. 

BoE Target Rate Announcement GBPUSD 720If history repeats, and it often does, the BoE could create an extremely volatile move on Thursday morning.  Nadex binary options and spreads provide the ideal trading vehicle because traders can limit their risk in these volatile situations.  Nadex Binary Options provides a free live demo account and you can open yours today by clicking here.

 

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