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China A50 price action 40 minutes before China RRR cut

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.


China cuts reserve ratio to stimulus growth

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

5 minute price action in China A50 40 minutes before PBOC cuts RRR

Director, TerraSeeds Market Technician Pte Ltd. Trader, investor. @sohtionghum was picked ‘Top 70 Forex Twitter in 2015’.

“Dear reader, I do not have a financial license to give advice. I do not know you the reader. Your financial objective and risk tolerance may be different from mine. I am not responsible for any consequence of your action.

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4 thoughts on “China A50 price action 40 minutes before China RRR cut”

  1. Yanpeng LIU says:

    Hi Mr Soh,

    Does this pattern only work in 5m charts and indices only?

    1. Soh Tiong Hum says:

      It applies to other time frames and can be found in forex, stocks, many other charts. Rather than to remember an exact repeat of this pattern, try to see understand the psychology behind – market is clearly anticipating something, so ‘everyone’ decides not to ‘rock the boat’ and therefore price goes flat. In charts where trading volume is available such as in stocks, another telling sign is volume diminishes.

    2. Soh Tiong Hum says:

      One other thing. This kind of price action can often be seen during holiday seasons, ‘off-peak’ hours which is due to low activity (traders not around) so you need to separate them.

  2. Yanpeng LIU says:

    Thanks Mr Soh!

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