Before you take a look at this simple setup, I suggest y’all check out my introductory post on the Weekly Winner to give you a better understanding of my framework.
July 25 to July 29, 2011: EUR/GBP Price Action Review
EUR/GBP started the week trading slightly higher and soon found itself testing the previous week high at .8955. However the pound staged a nice rally on a positive reaction to 2nd quarter GDP figures. From that point on, it was all about the pound dominating the euro!
The onslaught began on Wednesday, when Standard and Poors downgraded Greek debt from CCC to CC. This triggered risk aversion in the markets, and we saw the shared currency drop across the board.
The sentiment continued for the rest of the week, and on Friday, we saw Moody’s put Spanish debt on negative watch. This kept the pair from recovering its losses, causing EUR/GBP to end about 60 pips lower for the week.
Looking back, there was one clear signal that occurred on Tuesday, right before the release of the U.K. GDP report. Price tested the PWH at .8855 and Stochastic was overbought. That would have been good enough for me!
We could have went with a 50-pip stop and had we held the position open for the rest of the week, we could have made a cool 100 pips for our efforts. That would be equivalent to a 2:1 trade. Nothing great, but hey, given all that was going on in the markets last week, that ain’t too bad in my book!
Of course, with all that was happening last week, it was actually a rough environment to be trading in. Price action was pretty choppy, and one could have been easily burned. That’s why we need to keep doing these weekly reviews, so that we can gain a better understanding of different types of market environments.
There will come a time later down the road where you’ll look at your charts and say, “Hmmm… this looks mighty familiar. If I remember correctly, the markets reacted this way the last time this happened…”
That’s all for now. Before I go, a quick shoutout to the Boston Red Sox, who have turned their season around after the horrific start. Then again, this is exactly what a $163 million (yes, you read that right!) payroll should get you!