Trade Example: How To Trade ECB Member Comments

In this article and video we're going to look at another example to show you how Financial Source helps you generate really high probability trading ideas on a weekly basis.
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In this article and video we’re going to look at another example to show you how Financial Source helps you generate really high probability trading ideas on a weekly basis.

This example was from the 15th of August 2019. It occurred at 14:46 in the sentiment stream.

But the Audio Squawk came at around 14:44, it’s always squawked a couple minutes before the analysts have time to actually write it up as a headline, and you can see all the information you need to see is in the news feed items.

This trade example came from a news announcement from comments made by ECB member Olli Rehn. He said that the ECB needs to deliver a significant and impactful easing package in September 2019 and it’s better to overshoot than to undershoot in stimulus.

Basically, what he meant was that it’s better to be more dovish than not quite dovish enough with their easing methods. Now, this is market moving and we can see why from the Financial Source news item in the video example above.

Olli Rehn was considered as a neutral board member of the ECB. So, those comments are decidedly more dovish than his normal rhetoric.

Now you might be thinking, “Well, how do I know whether or not each ECB member’s comments are in line with their normal rhetoric or not?”. Well, inside the Financial Source terminal, in our currency research section, we actually have our central bank cheat sheets.

On these cheat sheets we give you all the members of each bank, their position, and crucially, their current monetary policy stance. So, for every member that’s in the bank, you’ll be able to see whether they’re a dove, a hawk, or neutral.

You’ll be able to see their recent comments, which we update regularly. And if you go to Olli Rehn, at the time before he made that announcement, we could see that he’s the governor and that his policy stance at that time was neutral.

That means he’s not particularly in favor of dovish action or hawkish action. But his comments from this trade example were basically saying that the ECB needs to forget about rate hikes and think of even more stimulus.

So, his comments were starting to lean to a dovish angle. But by no means was he a dove, he was still quite neutral.

And if we look at the ECB voting schedule at that time, we can see that his comments were very relevant, because on the 9th of September 2019 he was a scheduled voter in that next round of ECB decision making.

So, suddenly if you’re tuned into it, and if you’re aware of what’s going on, Olli Rehn’s comments being quite dovish are very relevant and you know they’re going to be market moving.

By looking at the EURUSD chart in the video example above, we saw that we had an immediate reaction on the price chart from the announcement. There was about three or four minutes, where you could digest this information.

This gave enough time to double check what Rehn’s position is, whether it’s relevant to the market, and then you can make a decision. So, you had enough time to see that:

1. He was neutral

2. That his comments were dovish

3. That he was a voter, so he’s going to have influence on the board

4. These comments are going to be market moving.

You could have got into EURUSD at around 1.1131, at about 14:43 when the comment was still fresh. And if we go to a higher timeframe to have a look at how this played out, we can see that Rehn’s comments caused a 50 pips drop in EURUSD.

This was a fantastic opportunity to trade a shift in sentiment.

As the ECB meeting was just around the corner, these comments by Rehn was an aggravation. Obviously, we’re expecting the ECB to do something, we’re expecting them to ease, but this was an aggravation in sentiment.

So, this made the market think that maybe the ECB are going to do more easing. Maybe instead of just a simple cut, maybe they’re going to do more, maybe they’re going to do more QE.

Maybe they’re going to add a broader range of stimulus measures, and hence the Euro fell off.

This was a classic example of a sentiment shift in the direction of the current sentiment. It’s an aggravation of the current sentiment.

It makes it more pronounced. And these are the kinds of moves that you get from those types of comments.

So, if you’re wondering how something like Financial Source can help you make money, these little events happen on a regular basis every week. These are the opportunities where you want to jump in and make easy pips, because these are the high probability trading opportunities. So, I hope that helps. We’d got a bunch of these trade examples available on our blog so make sure to check them out for some good trading lessons.

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