80 Pip Profit From RBA Speculation

In this video, we're going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the Australian employment report.
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In this video, we’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the Australian employment report. The move we’re going to be looking at was a move on the AUDUSD.

So, let’s break this down and see how you could have predicted and caught this move using our market commentary. Firstly, we need to understand the context of the baseline surrounding this pair or currency before the move took place.

If we go to the Financial Source Terminal on the 16th of October at 8:00BST, we posted a current sentiment driver report, which explained what things would move the AUD at the moment. This was the day before we had an Australian employment number due.

At the time for the AUD was being moved by a lot of ongoing developments of the US-China trade negotiation. So, risk tone was having an influence. But we also were looking at data, specifically negative data, because every time the negative data came out, it caused a little softness in the AUD.

There was a feeling that if the data kept getting worse, the RBA might have to cut. Now, if we go to the future sentiment shifts section, we can see that once the baseline was in place, this gives us the type of breaking news that would have to happen that would generate the biggest market-moving shift.

So, there were two things moving the AUD. The first kind of breaking news would be the positive risk tone surrounding the global economy. Thus, updates on the US-China trade negotiations. The second thing was Australian economic data itself, because any significant development, positive or negative, would see the market speculate on the RBA’s next move.

And this would cause a sentiment shift. So, if we get economic data that causes the market to speculate one way or the other on the RBS’s next move, that’s something that would cause a shift or a move on the AUD.

So, the only other thing we needed next, was the trigger. In other words, this actual thing happening that we identified ahead of time. So, if we go to the 17th of October, 06:13BST, just before the London session opened.

Overnight, we had the Australian employment data. We saw an uptick in the Australian employment and a drop in the unemployment rate. The overall employment data from Australia was positive, so we had positive data, but crucially, it wasn’t just the data, it was how the market reacted.

There was a surprise decline in the unemployment rate to 5.2 from 5.3, which basically meant the market started pricing in the chances of an RBA rate cut. Before the data, the chances of the RBA cutting were just under 40%, and just after this data, the market now slashed that probability down to just 27%.

This meant the chances of the RBA cutting rates at the next meeting dropped considerably, which of course is positive for the currency.

So, if we go back to the AUDUSD pair, we can see the data was released at 1:30 AM UK time. It was hours into the London market open, and you can see we have the report just before the London market opened, to basically say, this data came up positive, but crucially, it’s not just the positive data, it’s the fact that it caused the market to speculate that the RBA will not cut at their next meeting.

And this of course is very positive for the currency. And of course, we ended up with the move rallying higher. This is a great sentiment shift on the Australian dollar, and you can see it moved up.

The actual thing moved up just about 80 pips through the next couple of sessions. If you’re interested in learning more about how our market commentary can help you interpret news and fundamental analysis into profitable trades like this, visit our products tab above.

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