- Different Types Of Forward Guidance - July 11, 2020
- Quick Tip On Looking For Entry Locations In Equities - July 11, 2020
- Another Example Of Why Expectations Are So Important - July 10, 2020
We’re going to demonstrate how Financial Source subscribers made money trading a sentiment shift involving diverging expectations for the RBA & BoC this week…
The move we’re going to be looking at is this one here on AUDCAD Pair. So, let’s break this down and see how you could have predicted and caught this move, using our market commentary.
So, firstly we need to understand the context or the baseline surrounding this pair before the move took place…
Now if we quickly look inside the Financial Source Terminal on the 5th of February, we released our Dominant Currency Sentiment report. This report highlighted that the short-term baseline for the AUD was to the upside given that the market had started to decrease their expectations for a possible 25bsp rate cut by the RBA in March. This was based on a speech made by Governor Lowe which explained that even though the RBA is still deliberating easier policy, they felt the benefits of further easing did not outweigh the potential risks.
Then, looking at our Tradable Sentiment shifts report the day before, we saw the CAD was pressured due to big drops in oil prices as well as rising expectations for the BoC to ease rates in the year ahead.
So, based on this we knew that the AUD was being driven higher and the CAD was being driven lower and created a create trading opportunity.
Once the baseline was in place the next step is to identify the type of breaking news that would generate the biggest market moving shift…
So, for this we can go back to the terminal again to the 5th where we released our video commentary updates and the first video for the day highlighted that our dominant currency pair, we were focusing on was the AUDCAD.
We explained that the current freshness of the sentiment driving the pair meant we could enter at market or wait for a very shallow pullback to take advantage of the expected move to the upside.
We also highlighted that we should pay attention to any drastic changes in the risk tone as any positive comments about the Coronavirus could affect the risk tone and should be more supportive of the AUD than the CAD.
So now all we needed next was the trigger, in other words, the sentiment shift that we identified ahead of time, to actually take place.
So, also in the terminal, just 30 minutes later on the 5th there was an unconfirmed report which stated that a research team at a Chinese University had found an effective drug to treat people with Coronavirus.
Now after this report, we saw a quick risk-on sentiment develop in the market which gave the AUD an additional boost as expected. Looking at the chart, we can see that within this first box is where we did our first video highlighting the upside bias for the pair, as the sentiment was fresh, we could either enter at market or wait for a potential pullback.
After the announcement of the potential breakthrough in the virus we saw the positive risk tone carry the pair all the way to our highlighted profit area right below the 0.9000 psychological level.
This could have banked a 40 pip profit in a short trading session.
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 the menu above and check out Financial Source.