Trade Example: How To Make Pips With Risk Sentiment

In this article and video, we're going to look at how a sentiment shift on the 14th of August 2019 generated a huge market move that Financial Source subscribers would have caught if they had been watching their screens and aware of the context of the information.
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In this article and video, we’re going to look at how a sentiment shift on the 14th of August 2019 generated a huge market move that Financial Source subscribers would have caught if they had been watching their screens and aware of the context of the information.

So, let’s illustrate how this worked. First, in the newsfeed on the 13th of August at 14:46 UK time, we had a headline that followed on from a previous headline 14:44, basically saying that the US has removed some products from the China tariff list.

Now, the context of this is that the ongoing negotiation between the US and China had created a negative risk sentiment, which essentially means any pair with the yen, so USDJPY, EURJPY, GBPJPY were dragged lower.

This happened because everyone was buying the Japanese yen as it’s a safe haven currency. When things go risk off, it’s the Japanese yen that everyone buys. So, in response to this great tariff news, negotiations and everything looked like it was going positive.

From the charts in the video example above we saw the reaction was almost a 200 pip move across EURJPY alone. So, we had this fantastic rally, which you could have caught, because obviously it was a shift in sentiment.

Now, this was what happened on the 13th of August. The following day, things made another U-turn again.

So, on the 14th, the day after, there was an update in Financial Source which said that comments from President Trump indicated that the concessions for the tariffs were not in response to any progress in negotiations or reciprocity from Beijing.

Instead, they were just an effort to help US consumers have a more affordable festive period. Basically, what this means was the market kind of got a bit ahead of itself and got a bit excited for no reason.

Now, why is this important? In the video example we see there was a huge reaction of almost 100 pips following this headline.

This headline was posted at 11:12 on August the 14th

After digesting the information, the market realized that the whole reason the JPY pairs went up has just been revealed to be nonsense. So, the obvious thing that’s going to happen now is the market is going to sell from here and unwind this entire position.

By looking at the EURJPY in the video example above, we can see you had a couple of minutes after the news broke to digest and react to the announcement.

The whole bullish move reversed over 100 pips as soon as the market realized they’ve got ahead of themselves.

Now, just for some clarity here, if we go to our market insights section, we saw that this was posted at 12:26. We posted it as a dominant currency sentiment update to short the euro, long the yen, because of all this that happened.

So not only did this news break, but in case you missed it, we actually posted a very clear outlook signalling that this kind of move might happen.

That’s yet another example of how you can catch the move trading the sentiment, and that’s another example of how Financial Source delivers you the market moving information that professional traders use to make pips every single day.

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