A Beginner’s Guide to Understanding the European Central Bank

European Central Bank explained by professional Forex trading experts the “European Central Bank” FX trading team.

European Central Bank?

As a Forex trader it’s a good idea to get comfortable with major Central Banks and familiarize yourself with their Monetary Policy which can help you develop trade ideas. If you’re new to Forex, but are familiar with the Stock Markets, you can think of a Central Bank Meeting as the Forex equivalent of the Earnings Announcement. When a company announces their earnings, they’ll also get investors excited about upcoming opportunities that the company is looking to capitalize from.

Conversely, if you remember 2008-2013, it’s also an ideal time to let investors know that they shouldn’t plan their retirement just yet as the company is facing a few headwinds that will have to be addressed before they can hit their targets as a company. When a Central bank has a monetary policy announcement, they’ll likely discuss what opportunities lie ahead like, how the economy as a whole is looking to capitalize on. For example, such as improving the employment picture or a healthy showing of inflation, or when there are challenges ahead like inflation getting out of hand, that the Central Bank is hoping to keep it contained.

Understanding a Central Bank

To get a good grasp of any central bank, it’s helpful to know three things. First, you need to know what economic measure they find important and worth managing as a central bank, also referred to as key mandates. Second, it’s important to know when they are meeting next so that you can manage your trades accordingly. Third, it’s important to know what major undertakings the central bank is involved in which has dramatically affected their currencies value and at some point they may soon unwind which will also have extreme importance to the future value of the currency you’re looking to trade.

Background on the ECB

A unique aspect of the Eurozone is that they are in charge of managing the monetary policy that is meant to support the economic needs of 18 different member states. However, it’s important to know everyone who is in the European Union does not use the Euro currency.

European Central Bank Conclusion

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