Taking a Fundamental Approach to Forex Trading

Trading the Euro with the ECB Rate Decision

The European Central Bank (ECB) is the youngest bank in the developed world. In 2001, ECB took full control over currency and monetary policy from eleven European central banks. With Macedonia joining the Euro Zone in January 2007, the ECB becomes the central monetary authority for thirteen member states. In order to keep inflation at targeted levels, ECB Governing Council meets twice each month in the Euro Tower in Frankfurt, Germany. The purpose is to set the future course of overnight interest rate in the Euro Zone. Thus, the rate decision is announced at a press conference held shortly after the first meeting each month.

ECB Governing Council Structure: Comprises of two main bodies

1)	The Executive Board : Appointed by the heads of the states of the Euro Zone countries and consists of: The President The vice president Four other members
2)	The governors of the national banks of the thirteen Euro area countries

Whether the ECB tends to increase, decrease, or maintain interest rate, the decision always has a direct impact on the Euro this is why...

•	By increasing interest rate, the ECB is literally selling Euro government securities to major financial dealers who in turn would pay by transferring money to the ECB account. This would decrease the supply of the Euro in the banking system and hence appreciate its value.
•	By cutting interest rate, the ECB is literally buying Euro government securities from major financial dealers who in turn would get paid by transferring money into their accounts from the ECB. This would boost up the supply of the Euro in the banking system and hence depreciate its value.