Is This the End of an Era for Central Banks and Mon-Pol?

Posted Friday, February 3, 2017 by
Skerdian Meta • 2 min read

Most of forex strategies that are out there focus either on the monetary policy, which includes central bank actions or rhetoric or on the technical side which are the charts and technical indicators.  

That´s because the monetary policy and the charts have been moving the financial markets since I can remember. That´s if we leave aside periods of shock such as the 2008 financial crisis. 

But, judging from the past year and particularly in the last few months, I can say that this sort of trading is coming to an end. The politics are getting more and more attention nowadays in the financial markets. First, it was Brexit, now Trump.

After decades of trading central banks, we have forgotten that fiscal policy makes the other half of the coin when it comes to money markets and it is often much more effective for an economy and the currency. 

But that´s just one of the guns in the arsenal for politics to move the markets. Trade war is another one and from what we are seeing so far from the new White House administration, there´s more battles to come from the US, which will force other countries to position themselves on the trenches and fight back. 

Currency war is the third weapon of mass destruction for forex traders. Central banks have been fighting this battle until now, but it looks like Trump wants to be in charge of that too now. He has jawboning the Buck in the last two weeks and the USD is about 5% lower now. 

In such cases, central banks, the economic data and the technical analysis doesn´t matter much. I´m not saying that they will disappear or just stop moving the markets, but their impact on the financial markets and most importantly on forex will diminish, while the effects of the politics will be bigger.

I wish it wasn´t so and hope that politics stay out of markets as much as possible because you cannot predict what might pop up in some politicians head at any time, which will shock the markets.

But, with Trump this is highly unlikely, so a new era for forex traders is approaching and a new trading environment is unfolding before our eyes. Let´s see how much the US employment report will move the forex market in about an hour. 

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