Central Bankers Move the Markets

The binary option trader needs to track impending central bank decisions and statements. Their words are powerful triggers for market sentiment to cascade through the social media. By closely following central bank statements and minutes, the trader will get, in advance, one of the best leading indicators for whether conditions are suitable for different trading strategies. When a central bank statement is due, consider an out-of-the-money strategy. It is more appropriate than a deep in-the-money strategy because there is a high potential for a surprise in the statement. This is what happened when Trichet, the head of the European central bank, spoke on May 5 (Figure 4.29). It significantly moved the markets because interest rate expectations for the EUR/USD changed from being hawkish to dovish. The EUR/USD registered a drop of 125 pips and caused a two-week low. The moral of the story is to always expect surprise. The trader on the side of surprise makes the most money. To read the central bank statements and monetary decisions, go to http://www.bis.org/cbanks.htm.