Given the slew of data this week, it would always be a volatile trading week. The first was the CPI which, coming in slightly better than expected, resulted in markets initially rushing higher before falling sharply lower. The second big event was, of course, the FOMC. Once again, the market duly delivered volatile trading conditions in both equities and forex, with risk pairs such as the aud/usd responding accordingly. The 30 min chart for the pair illustrates the market’s reaction with more extreme knee-jerk type moves on the CPI and more whipsawing during the FOMC. This is to be expected as the CPI is a straightforward, instant release, while the FOMC happens over a period of time and includes a press conference where traders and algos will react to comments by Jay Powell.
It is during such events that our volatility indicator will trigger in real-time. In other words, two purpose dots will appear as the candle is forming. This tells us instantly that volatility has arrived as the price action is outside the average true range for the timeframe, which is seen on the 30 min chart for the aud/usd. In addition, insiders and market makers also use volatile price action as the easiest way to trap traders on the wrong side of the market.
Understanding price action, volume, and volatility is covered in our Forex Program, details of which you can find here: bit.ly/3VrTP8G
By Anna Coulling