How To Trade The Bank Of England

In this video we're going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the Bank of England interest rate statement this week.
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In this video we’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving the Bank of England interest rate statement this week.

Now, we’re going to be looking at a move that occurred on the GBPUSD. So, what we’re going to do is break this down and see how you could have predicted and caught this move using our market commentary.

So, first of all as ever, we need to understand the context, or the baseline surrounding this pair and this event before the move took place. On November the 7th, at 09:17 UK time, we published our risk event report for the Bank of England event.

We gave it a volatility risk of 50%. Policymakers were expected to hold rates at 0.75%, in what was expected to be a unanimous decision. Now, just to really go a bit deeper into this, on the bottom of this report, we also posted a little image that was produced by ING Bank.

Now, the cool thing about this is they gave us four different possible scenarios. But the base case was actually for the Bank of England to remain on hold and tilt to a little bit more of a hawkish bias. The point here is that even the least hawkish one all had the bank board agreeing unanimously to hold rates unchanged.

The big expectation was that it was going to be a unanimous decision where all nine members agree to hold rates steady. So, that was the baseline. We knew essentially if that didn’t happen, if for some reason they voted more dovish, and there was not unanimity holding rates, then this could be a big market move.

The final thing we needed after understanding the baseline was a catalyst. We knew they type of news that would create a sentiment shift was if the bank were more dovish than expected and if there was no unanimity in the decision.

So, all we needed was the trigger. The trigger event was at 12:00 PM UK time on the 7th when the BoE’s rate decision was released. This is perfect because we could actually wait for this event and actually be ready immediately if there were any triggers.

Now, in the terminal we at 12:00, a few seconds after the NPC released their minutes, there was a big shock because the members had a split vote of 7-2. It wasn’t a 9-0 as expected, it was a 7-2, which means two members voted to cut.

The two members, Haskell and Saunders, who voted for the rate cut made this decision even more significant. If we go into the Financial Source Terminal and open up our Bank of England cheat sheet here, we can see that Saunders, who’s one of those dissenters voting for a cut was actually a hawk.

Hawks normally prefer rate hikes. For a Hawk to vote for a cut, it was very, very significant. So, all these things were completely unexpected for the market, and this caused the pound to sell off. Now, if we take a quick look at the GBPUSD we can see the price dropped instantly after the announcement.

You’re very rarely going to catch those moves because you get things like slippage. The whole market was trading one way. So, instead of trying to catch we can drop to a one-minute chart at see that after the initial spike higher the price kind of waited, retraced, and was messing around at the 1.2835 area for quite a long time.

So, there’s plenty of time to look at what happened. Plenty of time to digest this snap analysis and really understand what happened, and the you could have entered the market close to the 1.2835 level.

Of course, from the chart we saw that the price pretty much dropped through the rest of the session and the session after that, and the move in total was about 70 pips to the downside.

So, 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, click on the product tab in the website menu above and check out Financial Source.

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