Today at 2pm there was a Federal Open Market Committee Meeting (FOMC) announcement. First up, you may be wondering what the hell exactly is the FOMC? The FOMC is the crew of rich people (ex-bankers, wall street types, economists) that now work for the government and evaluate the economy and make decisions about monetary policy. Real boring stuff that few regular people pay attention to, but the kind of real boring stuff that basically runs the world. Today they looked at the US economy and said “hey, we’re not feeling in mood to raise interest rates.”
The decision to leave the benchmark interest rate as is can be interpreted as a lack of confidence in the strength of the US economy. As such traders might elect to put their money in other currencies and weaken the dollar, thus what happened today with Euro vs the Dollar. Take a look below at the hourly EUR/USD chart:
You can see at 11am PST, or 2pm EST the exact time of the FOMC announcement, there was a spike in the EUR/USD. This spike means the value of the Euro went up and the value of the dollar declined. To be exact, at 2pm the exchange rate opened at 1.16456 and closed at 1.17035, a difference of 57.9 pips.
This was a excellent trading opportunity since there was a very clear ‘floor’ for this currency pair around 1.16186. A trader could set a stop loss at that level early in the day in case news out of the FOMC affecting the pair negatively.With that stop loss a trader would have unlimited opportunity to the upside and very limited downside potential.
I have been practicing Forex trading in a practice account at Forex.com. I entered EUR/USD sometime ago at 1.10439. As of this post I’m up over 100 pips in this test trade. I got in shorting the dollar because of the long term trend of the dollar weakening since April. I need to learn far more about what the causes are behind the softness in the dollar before I’ll fell comfortable wagering real money on such a trade.