It has been another lively week in the FX markets with two particular currencies standing out – the GBP and the USD. Why? Well their big moves have been driven by market speculation around two absolutely massive economic events for their respective nations and therefore currencies. Next month in the UK we have the unprecedented EU referendum (vote which will decide if the UK stays in the EU or not) and then out of the US we have their next big interest rate decision. Although neither have taken place yet, this week has seen some sharp changes in market views and speculation which has led to some huge moves which have been more than tradeable. Below we break these down in a little more detail, illustrate it all with some recent trade example videos and explain how you can do the same:
US Rate Decision – 15th June 2016
On Wednesday evening (UK time) we were provided with the latest monetary policy meeting minutes from the US central bank, the Federal Reserve (FED). These minutes were a summary of the last meeting they had in April and are not generally market moving as they are normally a re-iteration of what was said and done two weeks prior at the live meeting, and therefore old news. However every so often they can provide a little extra detail which causes market speculation/view to change sharply and this was most certainly the case this week.
Prior to Wednesday’s event, the market was pricing in/speculating on a 16% chance of a rate hike in June but these odds took a sharp turn higher when the meeting minutes provided a curve-ball, unexpected and surprisingly more hawkish/bullish comment than expected where it stated that ‘most FED officials saw a June hike highly likely’. Cue aggressive and sustained one directional USD strength as the market started to heavily speculate that a hike next month is much more likely and this in fundamental terms is USD positive. If you were at your charts around 7pm (London) you will have seen the USD boom across the board and this continued pretty much for the next several trading sessions. These were not random moves, neither technical breaks, they were fundamentally driven by speculation rising around another rate hike in America.
EU Referendum in the UK – 23rd June 2016
The GBP has lost a significant proportion of its value against most of its major counterparts over the past several months and this has been all down to one thing – The EU referendum which takes place in little over four weeks time. Up until this week we had seen a number of pre-event polls suggesting that the ‘leave’ campaign was out in front and this bought with it the inevitable economic uncertainty that would accompany a ‘Brexit’ (Britain leaving the EU). The speculation around this therefore was leading to some significant weakness in the GBP in recent weeks however this week we started to see a shift in sentiment with more polls suggesting the ‘stay’ campaign was fighting back. This was no more market moving than on Wednesday when one poll confirmed a near 20% gain for the remain camp.
Therefore, in a similar way to the US interest rate hike, we saw speculation and market view shift sharply. From so much uncertainty and fear we saw confidence and hope creep back into the market that a ‘Brexit’ wont happen and all the negative economic consequences can be avoided. This saw the GBP have one of its best days in quite some time on Wednesday as the bulls were more convinced to take advantage of the slightly more certain future for the UK economy.
It’s important to note that the vote has yet to take place yet and so it has been pure speculation driving the GBP but we can absolutely take advantage of it so long as we have strong fundamental drivers/catalysts behind the moves and understand them completely. As traders, we are speculators on direction and get paid for getting it right therefore all of our hard work needs to go into this.
How we planned for it!
The most critical element, when looking to trade changes in market speculation or view, is to have a very good understanding of the current situation/market view. This then enables you to be able to quickly and confidently react to news which significantly changes this. You can do this through some extensive reading of the major news wires and getting ‘in-tune’ with the markets current view or, to cut down your workload and make things a whole lot easier, you can of course become a member of the mentoring service whereby I condense the key information for you in daily email previews and a weekly market analysis video.
In the example of the US rate decision, we knew the market had a very low expectation of a June hike so the only way this would change was if the FED, in their meeting minutes, offering anything ‘extra’ to change this view. Of course, from reading above, the statement provided an absolute pearler of a bullish comment which dramatically increased the percentage chances of a hike and this is what caused the USD to surge against all of its counterparts. Seeing that shift enabled us, as very tuned in trades, to quickly seize the moment and take full advantage (as you will see in some of the trade videos below).
In our ‘evening report’, sent to mentoring members, they were provided with our preview of what to expect, and what could get the USD moving:
So its not a benefit of hindsight, its a proactive and well though-out preparation for news events in advance of their release so that we can take full advantage by getting into the moves seconds after they begin, to capture the meat of the move and to stack the odds heavily in our favour for generating a nice profit.
The same principle applies to all news events and the same was for the Brexit related polls, this is something we have been discussing in the weekly market analysis videos and daily reports on the mentoring service. When you expect and prepare for something to happen, if then it happens, you can trade it with so much more confidence.
And how we traded it!
Ok so let’s back all of the above up with some trades taken in light of both these events. Below you will see a snapshot of just some of the trades we have taken this week and the thought process behind them which will back up everything discussed in this blog post…
And to top it all off, a few nice testimonials from traders on the service who took some decent returns…and not just on FX!
Just took 80Pips off GBPNZD!! pairing weakest against strongest as always
I got to the charts a few minutes after the announcements to see that there had been positive news about next month’s potential rate hike and got into EURUSD sell. Was quite tempted by USDCAD as well when I saw that oil was starting to drop quite aggressively but decided to stick with the one trade as it seemed to be moving quite well. It wasn’t the best entry so came out after +25 pips, which I was pleased with.
It was nice to bag around 1/4 % in effectively 15 mins or so
Love these reports Tom.
I enjoy understanding what moves the markets and why!
My Dow trade is now up 600 pips.
We have showcased just two of many news events which take place every single week and create changes in market speculation/view. So if you can get an intimate gage of what the market is currently thinking about certain events, you can diligently trade the strong moves which often occur when a large shift in these views takes place.
I hope you were able to learn something valuable from the post and take something away to use straight away in your trading.
Want to learn more?
Our online course and daily mentoring service are readily available. Here they bring you fully up to speed with the fundamental side of trading which is an absolutely essential component of a traders artillery. Links to both can be located below:
Until we speak next
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