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endorse it with a MONEY BACK GUARANTEE! (Terms and conditions apply).
"It is better to travel well than to arrive."
By Buddha.
Round and Round with Monetary Policy Cycles
For those of you that follow the U.S. dollar and economy
(and that should be all of you!), remember a few years back when the Fed
increased interest rates by 10% out of the blue?
It was the craziest thing to come out of the Fed ever, and
the financial world was in an uproar!
Wait, you don’t remember this happening?
It was all over the media.
Petroleum prices went through the roof and milk was priced
like gold.
You must have been sleeping!
Oh wait, we were just pulling your leg!
We just wanted to make sure you were still awake. Monetary
policy would never dramatically change like that.
Most policy changes are made in small, incremental
adjustments because the bigwigs at the central banks would have utter chaos on
their hands if interest rates changed radically.
"You can’t start the next chapter of your life, if you
keep re-reading the last one."
By Unknown Author.
"Courage is not the absence of fear. It is the ability
to face it, overcome it, and finish your job."
By Billy Cox.
Types of Monetary Policy
(Part 2)
They know that some
inflation is a good thing, but out-of-control inflation can remove the
confidence people have in their economy, their job, and ultimately, their
money.
By having target inflation
levels, central banks help market participants better understand how they (the
central bankers) will deal with the current economic landscape.
Let’s take a look at an
example.
Back in January of 2010,
inflation in the U.K. shot up to 3.5% from 2.9% in just one month. With a
target inflation rate of 2%, the new 3.5% rate was well above the Bank of
England’s comfort zone.
Mervyn King, the governor
of the BOE, followed up the report by reassuring people that temporary factors
caused the sudden jump, and that the current inflation rate would fall in the
near term with minimal action from the BOE.
Whether or not his
statements turned out to be true is not the point here. We just want to show
that the market is in a better place when it knows why the central bank does or
doesn’t do something in relation to its target interest rate.
Simply put, traders like
stability.
Central banks like
stability.
Economies like stability.
Knowing that inflation targets exist will help a trader to understand why a
central bank does what it does.
"Your future is created by what you do today not
tomorrow."
By Unknown Author.
"Don’t live the same year 75 times and call it a life."
By Robin Sharma.
Types of Monetary Policy
Monetary policy can be
referred to in a couple different ways. Contractionary or restrictive monetary
policy takes place if it reduces the size of the money supply. It can also
occur with the raising of interest rates.
The idea here is to slow
economic growth with the high interest rates. Borrowing money becomes harder
and more expensive, which reduces spending and investment by both consumers and
businesses.
Expansionary monetary
policy, on the other hand, expands or increases the money supply, or decreases
the interest rate.
The cost of borrowing money
goes down in hopes that spending and investment will go up.
Accommodative monetary
policy aims to create economic growth by lowering the interest rate, whereas
tight monetary policy is set to reduce inflation or restrain economic growth by
raising interest rates.
Finally, neutral monetary
policy intends to neither create growth nor fight inflation.
The important thing to
remember about inflation is that central banks usually have an inflation target
in mind, say 2%.
They might not come out and
say it specifically, but their monetary policies all operate and focus on
reaching this comfort zone.
"Strength is only developed through struggles."
By Billy Cox.
HOW DO I RECEIVE ADDITIONAL TRADING AND TECHNICAL SUPPORT?
You can contact us through:
Mobile: +6012 299 0776
+6012 477 0776
Skype: sslfxguru
Website: www.sslfxguru.com
"Reach higher every day. The more you reach the more
you will be rewarded."
By Billy Cox.
.
Why Interest Rates Matter for Forex Traders (Part 6)
Nominal vs. Real Interest Rates
When people talk about interest rates, they are either
referring to the nominal interest rate or the real interest rate.
What’s the difference?
The nominal interest rate doesn’t always tell the entire
story. The nominal interest rate is the rate of interest before adjustments for
inflation.
real interest rate = nominal interest rate – expected
inflation
The nominal rate is usually the stated or base rate that you
see (e.g., the yield on a bond).
Markets, on the other hand, don’t focus on this rate, but
rather on the real interest rate.
If you had a bond that carried a nominal yield of 6%, but
inflation was at an annual rate of 5%, the bond’s real yield would be 1%.
Boohoo!
That’s a huge difference so always remember to distinguish
between the two.
"Release bitterness, forgive those who have hurt you,
let go of disappointment, and start living in faith."
By Billy Cox.
"It’s time to re-ignite those goals and dreams you have
given up on or pushed down."
By Billy Cox.
Why Interest Rates Matter for Forex Traders (Part 5)
Interest Rate Differentials
Pick a pair, any pair.
Many forex traders use a technique of comparing one
currency’s interest rate to another currency’s interest rate as the starting
point for deciding whether a currency may weaken or strengthen.
The difference between the two interest rates, known as the
“interest rate differential,” is the key value to keep an eye on. This spread
can help you identify shifts in currencies that might not be obvious.
An interest rate differential that increases helps to
reinforce the higher-yielding currency, while a narrowing differential is
positive for the lower-yielding currency.
Instances where the interest rates of the two countries move
in opposite directions often produce some of the market’s largest swing.
An interest rate increase in one currency combined with the
interest rate decrease of the other currency is a perfect equation for sharp
swings!
"Your past has no power over you."
By Billy Cox.
Why Interest Rates Matter
for Forex Traders (Part 4)
Interest Rate Expectations
Markets are ever-changing
with the anticipation of different events and situations. Interest rates do the
same thing – they change – but they definitely don’t change as often.
Most forex traders don’t
spend their time focused on current interest rates because the market has
already “priced” them into the currency price. What is more important is where
interest rates are EXPECTED to go.
It’s also important to know
that interest rates tend to shift in line with monetary policy, or more
specifically, with the end of monetary cycles.
If rates have been going
lower and lower over a period a time, it’s almost inevitable that the opposite
will happen.
Rates will have to increase
at some point.
And you can count on the speculators
to try to figure out when that will happen and by how much.
The market will tell them;
it’s the nature of the beast. A shift in expectations is a signal that a shift
in speculation will start, gaining more momentum as the interest rate change
nears.
While interest rates change
with the gradual shift of monetary policy, market sentiment can also change
rather suddenly from just a single report.
This causes interest rates
to change in a more drastic fashion or even in the opposite direction as originally
anticipated.
So you better watch out!
"Sometimes we need to lose our way to find our way."
By Robin Sharma.
HOW DO I RECEIVE THE TRADE SIGNALS AND UPDATES?
We will alert you to trade by sending signals via SMS.
"To the go-getter, a day without learning is like a day
without breathing."
By Robin Sharma.
.
Why Interest Rates Matter for Forex
Traders (Part 3)
What does this have to do with the
forex market?
Well, currencies rely on interest
rates because these dictate the flow of global capital into and out of a
country. They’re what investors use to determine if they’ll invest in a country
or go elsewhere.
For instance, if you had your
choice between a savings account offering 1% interest and another offering
.25%, which would you choose?
Neither, you say?
Yea, we’re inclined to go the same
route – keep the money under the mattress, ya know what we mean? – but that’s
not an option.
Ha! You would pick the 1%, right?
We hope so… because 1 is bigger
than 0.25. Currencies work the same way!
The higher a country’s interest
rate, the more likely its currency will strengthen. Currencies surrounded by
lower interest rates are more likely to weaken over the longer term.
Pretty simple stuff.
The main point to be learned here
is that domestic interest rates directly affect how global market players feel
about a currency’s value relative to another.
"What you think about me is not my business. The
Important thing is what I think about myself."
By Robert Kiyosaki.
"Happiness is not an accident. Nor is it something you
wish for. Happiness is something you design."
By Jim Rohn.
Why Interest Rates Matter for Forex Traders (Part 2)
In an effort to keep inflation at a comfortable level,
central banks will mostly likely increase interest rates, resulting in lower
overall growth and slower inflation.
This occurs because setting high interest rates normally
forces consumers and businesses to borrow less and save more, putting a damper
on economic activity. Loans just become more expensive while sitting on cash
becomes more attractive.
On the other hand, when interest rates are decreasing,
consumers and businesses are more inclined to borrow (because banks ease
lending requirements), boosting retail and capital spending, thus helping the
economy to grow.
Yippee!
"You were born into genius. Don’t settle for any
mediocrity."
By Robin Sharma.
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