+150 pips, 5 minutes, fuelled by a central bank. Learn how we did it!!

Hello Traders, 

I wasn’t planning to do another blog this week but as we had such a powerful news event earlier, I wanted to send you some of the finer details on how we were able to plan for and take full advantage of the movement seen in the EUR today. 

So, first things first. As you will have seen in a recent blog, preparation is the key to trading news events successfully so let me share with you extracts from the ‘midday report’ I send to my mentoring students to help them plan for today’s events. This will then help to shed light on what our expectations / plans for trading it were:


US Session Forecast
 

The event of the week is soon upon us with the ECB about to announce their latest rate decisions and follow that up 45 minutes later with the usual press conference hosted by none other than central bank president Mario Draghi who will confirm any further policy action in his opening remarks. In what has the potential for a large degree of volatility, we are likely to see some fireworks this afternoon, especially on the EUR pairs but it could flow through to others i.e. CHF
 
There has been increasing speculation about further European central bank action ever since comments from Mr Draghi hinted about the need to do more to boost inflation. Since these initial comments several months back, the threats of more action have intensified with the ECB president stressing at the start of last month that they would do ‘all it takes’ to get inflation back on track. The ECB fear’s for a ‘deflation’ like scenario like in Japan and so are keen to address the situation sooner rather than later.
 
Due to these very open/public comments the market now has an expectation of further cuts to the deposit rate from -0.2% currently to -0.4% (2bps) and/or an extension/expansion to the current QE programme. This extension could be in length (extra 6-12 months) and/or size (10-15 billion Euro’s per month). As a guide on the current QE programme, the end date is September 2016 whilst the current monthly purchases are 60 billion Euro’s. Given the fact that these are widely expected measures, they have in essence been priced in so we would be looking for more aggressive measures than this for the EUR weakness to sustain itself against its stronger counterparts. 
 
It is very important for me to point out that given the fact that the market is heavily bearish on the EUR right now, with very high expectations of further action, there is a big risk for disappointment. If the ECB don’t give the market want it wants i.e. more than what they are currently expecting then we could see a pretty sharp relief rally on the EUR as large short positions are unwound. Mr Draghi hasn’t disappointed the market yet this year, by over delivering on his threats, but his recent comments have set the bench mark for further action very high and if he doesn’t deliver the goods we could see counter-intuitive moves on the EUR. 
 
If you are new to news trading or have very little experience in trading these types of events, I would suggest to sit on the sidelines and watch. Use it as a learning experience. The price action has the potential to move very violently, very quickly as the market digests the various elements. This makes for highly pressured trading conditions. From a personal standpoint, I want to see the ECB throw the kitchen sink at the inflation problem and add a few elements of surprise into the mix to give the large institutions fresh and solid reasons to stay short and add further shorts. If it is not clean cut then I may just step aside and watch to see how the market reacts before considering a trade. If they massively under-deliver and hugely disappoint then I could even be tempted into buying the EUR, something I haven’t done in quite some time, but would consider it on a very short timescale i.e. just today. 

So as you can see there were three scenarios which could have played out. We never know for certain which one will but we can ‘prepare’ for every eventually. As is now known the ECB massively under-delivered on their promises, the EUR boomed and, as you will see from the trade video, this is how we were able to take full advantage. It was a pre-calculated, pre-prepared plan of action whereby we knew exactly WHY the EUR was rising when it had been free falling for the past several weeks. This is another reinforcement of the power of tuning into the fundamentals and the ‘pulse/mood’ of the market. 
As you know, your continued trading success is my biggest driver and so I wanted to share just a couple of really nice emails sent earlier today in response to the news: 

”Tom you really need to stop copying my ideas 😉 I am referring to buying the EUR if there will be no further rate cuts. Just kidding, great info for everyone who is new. I  am sure with time they will understand whats priced in already and what to ‘unexpect’…

…Buying the EUR feels awkward, my brain kind of freezed when I got into EURAUD and EURUSD buys. But after successful banking of +1.5% it feels better… 

…Great info as usual Tom” (Bogdan, UK)



”Hello Tom…

A rally of over 100 pips in EURUSD in both directions! I do not understand how one can only believe in technical analysis and ignore news, it makes zero sense to me… 

Cannot believe I was blinded by that school of thought! Both combined provides a different edge entirely. 

I am still blown away by your udemy course. I’m 2.7% up from since I started on the 2nd November 2015. That is through a mixture of technical and fundamental trades however 90% of those trades were fundamental trades meaning without investing in your course I would have made nowhere near as many pips as I have…” (Banji, UK) 

My main driver to write blogs is to educate, but alongside that, to also inspire and motivate you guys and as cheesy as it sounds, feedback like this keeps me inspired and motivated to continue and I love to share success as its becomes contagious. 

Until we speak next

Best wishes
Tom
W = www.springboardyourtrading.com
E = tom@springboardyourtrading.com

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