As I hoped, the ECB eased monetary policy further, but not as much as forex traders expected. This sparked a massive euro rally, which unfortunately, pushed my EUR/GBP short up to my max stop level. Here’s a quick trade review.
Original Trade Idea: Forex Trade Idea: Downtrend Pullback in EUR/GBP?
Check out Forex Gump’s post on why the euro jumped after the ECB announcement, but what it comes down to is Draghi promised “whatever it takes” to boost growth and inflation but the market felt like he didn’t deliver. Because a big easing was expected and priced in ahead of the event, the reaction was a big one as well as traders took off their bets after the initial announcement and then after the press conference.
This was obviously bad for being short EUR/GBP, and eventually, my max stop was triggered at .7175 as the market made its way to blast above .7200.
Total: -175 pips/ -0.50% loss
In hindsight, I could have made the same adjustment that I made with my CAD/JPY short by rolling down my stop ahead of a major economic event, but it was pretty much a no-brainer that we’d see easing. And with a wide stop, I thought I would weather any reaction volatility and stay in a trade that I think still makes sense fundamentally. With the deposit rate at -0.30% and an extension to easing, why be long the euro?
Unfortunately, the reaction was too big and I got stopped out, but I could have limited my loss by cutting after the initial announcement because the next push higher didn’t happen until the press conference. So, I took a bet and lost, but fortunately it was a very small loss and it could have been worse. And I think going forward, I will ALWAYS adjust ahead of top tier central bank events. Lesson learned and I live to trade another day. 🙂