Lately, there has been quite a bit of conversation surrounding the Federal Reserve, and for good reason. All last year, there was conversation about the Federal Reserve's plans to increase its interest rate. While they intended on raising the rate around June, economic conditions slowed the process, and they weren't able to do so until December. Nonetheless, when the Fed raised its interest rate, it made a key announcement. The plan was to raise the rate between 2 and 4 more times by the end of the year 2016. This has caused quite a bit of movement in the value of the USD as of late, and is likely to cause even more movement moving forward. Today, we'll talk about the FOMC meeting that's coming this month, what we can expect before, during and after the meeting, and how binary options traders can take advantage of the trends. So, let's get right to it…
The Federal Reserve Will Meet Again This Month
The Federal Reserve meets almost on a monthly basis for a meeting that is known as the FOMC meeting. At this meeting, members of the Fed discuss the state of the United States economy and what monetary policy is best at the given time. Lately, these discussions have surrounded interest rates. Back in 2008, during the global economic crisis, the Federal Reserve reduced its interest rate to a record low of 0.25% in an attempt to stimulate economic movement. Until December of last year, that is where the interest rate sat. Today, the Fed's interest rate is 0.5%, which is still incredibly low. As a result, at some point in time, they are going to need to raise the rate. The rate hikes everyone speaks of happen at these FOMC meetings.
Something for binary options traders to keep in mind is the fact that the Federal Reserve's interest rate essentially dictates what we can expect to see from the USD. Since the gold standard was abandoned, the value in any currency is strongly associated with the interest rate associated with that currency. So, when there are talks with regard to moving interest rates in one way or another, we tend to see movement surrounding the currency associated with the rate.
What We Can Expect Before The FOMC Meeting
While it was expected that the Federal Reserve would raise its interest rate in April, these expectations have changed in a big way. Recently, Janet Yellen made an announcement with regard to the Fed's plans to increase rates. The announcement came with a very dovish tone, signaling that while rate hikes are going to happen, chances are that we will not see one in April. Shortly following the announcement, we saw drastic declines in the value of the USD. With that said, because the overall idea is that the Federal Reserve won't be raising its interest rate this month, leading up to the FOMC meeting, we're likely to see a bit of volatility with more downward than upward movement.
What We Can Expect To See After The FOMC Meeting
As mentioned above, it's expected that the Federal Reserve is going to keep interest rates the same. If this is the case, we will likely see resistance in the United States Dollar. However, in the off chance that the Fed does make the decision to increase its interest rate, we can expect to see strong gains in the value of the currency.
How Binary Options Traders Can Take Advantage Of The Trends
As binary options traders, our ultimate goal is to find volatility and turn that market volatility into profits. Considering the conditions surrounding the USD at the moment, we're likely to see quite a few opportunities. Leading up to the FOMC meeting, traders should watch USD currency pairs, purchasing put options as strong downward trends make themselves apparent. When the FOMC meeting is going on, traders should watch closely. If it is announced that the rate is going to stay the same, more put options will be in order. However, if the rate is increased, even slightly, traders should change their strategy to take advantage of upward trends with call options.
What Do You Think?
Where do you think the USD is headed moving forward and why? Let us know your opinion in the comments below!
[Image Courtesy of Wikipedia]