In this article and video, we’re going to demonstrate how Forex Source subscribers made money trading a sentiment shift involving weaker than expected manufacturing data from the US.
The move we’re going to be looking at occurred on the USDJPY. So, what we’re going to do is break this down and see how you could have predicted and caught this move using our market commentary.
So, first, we need to understand the context or the baseline surrounding this move in USDJPY before the move took place. Now to do that, we need to go to the Forex Source news feed for 1 October 2019 which of course was the day of the event.
An hour before the ISM manufacturing PMI was released, we sent a report to Forex Source subscribers highlighting the important of the ISM data. We highlighted that markets were watching it very, very closely basically.
If you read the whole of this report, it said that the market didn’t expect the ISM Manufacturing PMI to be negative. It was expected to remain firm and positive, and it would give the market clues as to the strength of the US economy.
Now in our report there was a little interesting bit that highlight the effect that this data point will have on the FED. If for whatever reason we did get a poor reading, it would raise concerns with FOMC members that have constantly said they are data dependent.
At the time of this trade example the October FED meeting was coming up and there was about a 39% chance of a fed rate cut. However, there was a lot of the FED members on the fence, and basically the reason why this whole report was made is if manufacturing started to show signs of a recession, this would probably pull FED members off the fence and on the side of a cut.
Which would make a rate cut much more likely. This is the big reason why this was a focal point.
And of course, this would create a huge sentiment shift in the market if that occurred. So, once we’ve got that, once we got the baseline, we need to identify the type of breaking news that would generate the biggest market moving shift.
In this trade example, because it was all revolving around a data point, it would be a big negative deviation. So, if that manufacturing PMI came up positive, that’s not really going to create a shift, because everyone was expecting that. Everyone still had faith in the US economy.
However, if it came out negative, this is going to cause doubts to creep in. So, a negative reading was the big sentiment shift we were looking for.
The ISM Manufacturing came out at 47.8 which was a very big negative deviation and much worse than expected. Much worse even than the previous reading or any forecast from analysts. So, it was a pretty concerning report.
And of course, that was also the trigger for our trade.
This was the actual sentiment shift that we needed to take place and it happened. In the video example above we can see how this move played out on the USDJPY.
Now obviously, when you’re trading your data release like this, you’re not going to catch the move immediately every time. But the beauty of a sentiment shift, is these things last for the whole session and even for a couple of days after.
That’s the beauty of a sentiment shift, when you can identify them. And so, you don’t even need to try and catch the first initial move.
We waited a couple of minutes and highlighted the 107.90 area as a good spot to look for a re-entry on the pair after the first volatile move played out.
We were confident in the trade because from there the dollar was only going to go one way, because FED expectations for a cut went up.
The market was going to become concerned about a possible recession. This is going to cause a negative shift. We knew that ahead of time.
And if you have a look at the USDJPY in the trade example video on the 15-minute chart, you can see the dollar only went in one direction after that event for a couple of days after.
This specific move was over a hundred pips on the USDJPY. So, if you’re interested in learning more about how market commentary can help you interpret news, and fundamental analysis into profitable trades like this, checkout Forex Source.