How to take advantage of a Dovish central bank in Forex trading
A central bank’s monetary policy on interest rates is a key driver of the Forex market.
Here’s what you’ll do:
You’ll find another currency that belongs to a country with a Hawkish monetary policy.
Let’s say China’s central bank is Dovish.
The currency, Chinese Yuan (CNH) will be weak.
If the US’s Federal Reserve is Hawkish, the US Dollar (USD) will be relatively stronger than CNH.
So what does this mean?
USD/CNH is likely to be bullish – as you need more CNH to exchange for 1 unit of USD.
This trend will likely to continue for a good number of months before the central banks announce their next major policy decision.
Thus you’ll want to look for bullish setups to go long.
Here are some ways to trade this: