FOMC Meeting Annoucement

Definition           
The Federal Open Market Committee consists of the seven Governors of the Federal Reserve Board and five Federal Reserve Bank presidents. The FOMC meets eight times a year in order to determine the near-term direction of monetary policy. Changes in monetary policy are now announced immediately after FOMC meetings.

Description
The Fed determines interest rate policy at FOMC meetings. These meetings occur roughly every six weeks and are the single most influential event for the markets. For weeks in advance, market participants speculate about the possibility of an interest rate change -- or a change in the wording of the post-FOMC announcement that suggests a shift in policy -- at these meetings. If the outcome is different from expectations, the impact on the markets can be dramatic and far-reaching.
The interest rate set by the Fed, the federal funds rate, serves as a benchmark for all other rates. A change in the fed funds rate, the lending rate banks charge each other for the use of overnight funds, translates directly through to all other interest rates from Treasury bonds to mortgage loans. It also changes the dynamics of competition for investor dollars: when bonds yield 10 percent, they will attract more money away from stocks than when they only yield 5 percent.
The level of interest rates affects the economy. Higher interest rates tend to slow economic activity; lower interest rates stimulate economic activity. Either way, interest rates influence the sales environment. In the consumer sector, few homes or cars will be purchased when interest rates rise. Furthermore, interest rate costs are a significant factor for many businesses, particularly for companies with high debt loads or who have to finance high inventory levels. This interest cost has a direct impact on corporate profits. The bottom line is that higher interest rates are bearish for the financial markets, while lower interest rates are bullish.

Risk with News Trading

As with all major economic releases, there could be significant price volatility with this announcement.  Currency spreads will typically widen just before the release and will remain wide for a few minutes after.  If the announcement is a shock to the consensus estimate, the price of the currency pair could gap significantly.  For example, the price on the EURUSD trading at 1.2820 - 1.2822 just before release could gap up 60 pips to 1.2880 - 1.2882, without any available prices available between the price of 1.2820 and 1.2882.  A Buy Stop placed before the announcement at 1.2830 would turn into a Market Order and would be filled at the prevailing price 1.2882.  The same would be true with a Sell Stop.

Approximately four years ago we saw a gap of approximately 200 pips on the GBPUSD on a Non-Farm Payroll announcement.  While this is an extreme example, it nevertheless is a possibility with trading during economic announcements.  Consequently, plan on the spreads widening and, if you are trading with a Buy or a Sell Stop entry order, do not anticipate being filled at your entry price. You will be filled at the prevailing market price after the release, which could be significantly different from your desired price of your entry order. 

Please be advised that due to the volatility of price fluctuations during the news, it is possible to see a delay in execution due to the additional verification necessary for each trade.

NFP on 4th June 2010 - Fundamental Analysis

United States: Employment Situation (Non Farm Payroll Report-NFP) , June 4, 2010 at 8:30 AM ET.


What is the NFP report?

Of all the world monthly economic reports, the monthly U.S. Non Farm Report (NFP) is the most highly anticipated and has the most dramatic impact on the currency market.  The report, which is released on the first Friday of each month and states the previous month's numbers, provides detailed industry data on employment, hours and earnings of workers on nonfarm payrolls. These numbers are the best way to gauge the current state of the US market as well as the direction that the economy is heading. What's more, the employment numbers provided by the report are used by the Fed to shape their interest rate policies. The health of the U.S. economy and interest rates translate to the strength or weakness of the U.S. dollar. Risks Associated with Trading Off-Exchange Retail Foreign Currency During Economic News Announcements

As with all major economic releases, there could be significant price volatility with this announcement. Currency spreads will typically widen just before the release and will remain wide for a few minutes after. If the announcement is a shock to the consensus estimate, the price of the currency pair could gap significantly. For example, the price on the EURUSD trading at 1.2820 - 1.2822 just before release could gap up 60 pips to 1.2880 - 1.2882, without any available prices available between the price of 1.2820 and 1.2882. A Buy Stop placed before the announcement at 1.2830 would turn into a Market Order and would be filled at the prevailing price 1.2882. The same would be true with a Sell Stop.

Approximately four years ago we saw a gap of approximately 200 pips on the GBPUSD on a Non-Farm Payroll announcement. While this is an extreme example, it nevertheless is a possibility with trading during economic announcements. Consequently, plan on the spreads widening and, if you are trading with a Buy or a Sell Stop entry order, do not anticipate being filled at your entry price. You will be filled at the prevailing market price after the release, which could be significantly different from your desired price of your entry order.

Please be advised that due to the volatility of price fluctuations during the news, it is possible to see a delay in execution due to the additional verification necessary for each trade.

Hepi Trading.......