At 6pm Singapore time (GMT +8) yesterday, People’s Bank of China announced it will lower its reserve requirement ratio (RRR) for commercial banks. It is interesting to note the price action in China A50 prior to the news.
The People’s Bank of China, China’s central bank, Monday announced that it will lower its reserve requirement ratio (RRR) for commercial banks by 0.5 percentage point, starting from Tuesday.
The cut is to “ensure reasonably ample liquidity in the financial system; guide a stable and appropriate growth in credit; and create a favorable financial environment for supply-side structural reform,” according to a statement of the People’s Bank of China (PBOC).
The RRR cut came two days after the closing of the G20 Finance Ministers and Central Bank Governors Meeting in Shanghai, when China’s central bank described its monetary policies as “prudent with a slight easing bias,” a shift away from the simple “prudent” of recent years.
Analysts believe that the RRR cut is aimed to bolster economic growth and could be followed with more monetary moves in the near future.
The reduction will inject 700 billion yuan (107 billion U.S. dollars) into the financial system, and is expected to shore up the stock market, said Luo Yi, chief analyst with Huatai Securities.
Price action on 5-minute chart shows market holding its breath in anticipation of announcement. Traders: remember this pattern so you can recognise it next time. If you like to trade outcomes of high impact news, use this to jump. If you don’t like surprises, this pattern could be a telltale sign to get out of the way because following the announcement, China A50 spikes 163 points or 1.89%.
5 minute price action in China A50 40 minutes before PBOC cuts RRR
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Soh Tiong Hum is Director of TerraSeeds Market Technician Pte Ltd. TerraSeeds is a trading educator in Singapore since 2005.
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