One thing investors have in common is that they all look at past data to make predictions about future price action. There are two main ways investors look for clues about future prices. Investors use fundamental and technical analysis to predict future price action. Technical analyst uses past price action in the form of charts to predict future prices. Fundamental analyst use past macro and micro economic data to predict future price action. We here, at timstuyts.com are primarily technical analyst. We do, however, use a section of Fundamental analysis to trade. We use the macroeconomic data related to central banking along with technical analysis.
Central banks communicate their intentions through press releases. For example, the monthly minutes is scrutinized by investors looking for clues as to the direction of rates. There is also macro-economic data that is much related to central bank intentions. Central banks communicate this to the public. Last year the Federal Reserve expressed their concern for the employment picture. They told the public that they wanted Unemployment to drop below a certain level. This is called Quantitative guidance. Then later that year when the level was reached they switched to Qualitative guidance. This is when they not lonely look at the Quantitative number, but also look under the hood at the details of the employment picture—hence the quality.
This is when market expectation comes in. The market is always expecting price to move. And since price action moved on past central bank data, it expects it to move to future central bank data. So this leaves the markets always anticipating the move once the data comes out. So if a central bank communicates its intentions, if it is what the public expects, not much will happen. Later when data comes out in line with expectation, again nothing will happen. However, when data comes out skewed either way—less than or more than expected—the market moves—and usually in a big way. Traders try to capitalized on the volatility
However this is a daunting task when view only from Fundamental eyes. We here, at timstuyts.com combine central bank fundamentals with technical analysis (The Elliott Wave Principle) to gage future price action.