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Rate Expectation Repricingtrade the change in the forecast, not the rate

Evidence: ModerateProfessionalRates · Macro

A central bank's current rate is known to everybody and priced into everything. What moves a currency is the change in what the market expects the rate to be in six or twelve months — and that expectation moves constantly, in observable ways, between meetings.

This strategy ranks currencies by how much their expected policy path has shifted over the past month, and buys the one that has repriced most hawkishly against the one that has repriced most dovishly.

The return here comes from holding, not from being right about direction. That reverses the usual trade-off: time is on your side and volatility is against you, which is the opposite of everything else in this library.

Category
Rates · Macro
Timeframe
Monthly ranking · held weeks
Suitable pairs
G10 crosses where a liquid rate market exists
Session
Ranking at the month-end close · entries in London
Indicators / tools
Short-term interest rate futures or OIS-implied policy path for each currency · ATR(14) for sizing

Valid setup

CY-04 · RATE EXPECTATION REPRICING — VALID SETUP the signal is not on this chart — it is the one-month change in the 12-month implied policy rate LONG 1.3173 1.3228 1.3284 1.3339 1.3395 1.3450 1.3506 EXPECTATIONS FLAT — no ranking signal HAWKISH REPRICING OVER THE MONTH POSITION HELD TO THE NEXT RANKING 2R — optional partial, no fixed target 1R ENTRY = scaled in over the first three days of the month STOP = 2 × ATR(14), reviewed monthly 1 2 3 month start ranking 1.3370 1.3333 ① Implied policy path recorded at the month end ② It shifts hawkish over the following month ③ The chart is where the trade happens, not where it is found ④ Ranked top — entered over three days ⑤ Out early if next month's reading undoes the shift ⑥ Otherwise held until the ranking replaces it

Exact rules

Entry

  • For each currency, record the market-implied policy rate twelve months forward at every month end.
  • Compute the one-month change in that number. This is the signal — not the level, the change.
  • Long the currency with the largest hawkish shift, short the largest dovish shift. Enter over the first three days of the month.
  • Skip any currency with a policy meeting inside the next five trading days. Take the position after the meeting instead, when the repricing has happened.

Stop loss

  • 2 × ATR(14) on the cross, reviewed at each month end.
  • Exit early if the expectation reverses — if next month's reading undoes this month's shift, the reason for the trade has gone and waiting for the stop is sentiment.
  • Risk 0.5%–1% per pair.

Take profit / exit

  • No price target. Hold until the next monthly ranking replaces the pair.
  • Take partial profit at 2R if you need the equity curve to be smoother; it costs expectancy and it buys discipline, and that is a fair trade for some accounts.
  • Financing applies here too. A hawkish repricing in a low-rate currency can still be a negative-swap position.

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Trading carries risk and most retail accounts lose money. Nothing on this page is financial advice or a recommendation to trade. The chart is an illustration of the rules on constructed candles — it is not a record of a trade and not a backtest.