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Hawkish-Dovish Trading

A1 EdgeFinder Strategy

EdgeFinder Strategy

Hawkish-Dovish Trading

Objective:

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Match the best currencies together based on how hawkish or dovish they are
Use the Central Bank Forecasts to trade the most hawkish and dovish pairs out there. Having the ability to track the monetary path of central banks around the world will allow traders to get in on the action early. This strategy is designed to understand the general trend of short term interest rates a year in advance so you can either trade with a hawkish or dovish sentiment on certain currency pairs.

Hawkish/Dovish Scanner

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This chart does all the calculations for hawkish or dovish readings. Basically, the spectrum will tell you which currencies are the most hawkish or dovish based on their short term interest rate forecasts.
The way it is calculated is by finding the biggest difference between the current interest rate and the forecasted future interest rate. For instance, if a currency has an interest rate of 4%, and it is expecting to be at 1% in four quarters from now, that is more dovish than a currency at 2% and expecting 1%. However, if a currency’s interest rate is expected to be higher in the next four quarters, that would score as a hawkish reading.

Turning This Into Trade Setups

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The way to find the best pairs to trade are the ones with the most extreme readings in both directions. In the chart above, you can clearly tell exactly which ones to look at. NZD is reading the most dovish out of all these currencies, and CHF is ranked as the most hawkish. A trader could look at this graph and now look for short setups on the NZD/CHF pair.
Next Strategy: Seasonality Study

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