Aside from that crazy drop on EUR/GBP (which I wasn’t able to take full advantage of #%$@$#!!!), there was also an opportunity to capitalize on the euro’s weakness on EUR/JPY. The reward-to-risk ratio? A solid 9:1!
But before I share with you how you could have pocketed some profits, I suggest that you check out my introductory post on the Weekly Winner to better understand my trading framework.
The euro was weaker to start the week as risk aversion dominated the markets following the poor NFP release the Friday before. On Tuesday though, we saw euro pairs spike up thanks to the SNB’s decision to set a minimum rate for the franc at 1.2000 versus the euro. This caused EUR/JPY to jump up by almost 150 pips and nearly test the 110.00 psychological handle. However, the gains were short-lived, and the pair soon found itself consolidating just below the 109.00 handle.
The pair continued its losses on Thursday, thanks to some dovish remarks by ECB President Jean-Claude Trichet. He said that the ECB was more concerned about slowing growth rather than the risks posed by rising inflation. In addition, the central bank also downgraded its growth forecasts for the rest of the year and for 2012.
The selling continued on Friday as Greek debt concerns swept the market. The resignation of ECB member Jürgen Stark didn’t help matters either, and we saw EUR/JPY tumble down the charts. By the end of the day, EUR/JPY had closed at 105.80, down over 300 pips on the week!
There was actually a really good opportunity to take advantage of this sharp sell-off and this week’s setup shows why it literally pays to pay attention to those hard, round figures.
If you take a look at the chart, you’ll see that the 108.00 psychological level became a good support-turned-resistance level when price retested it early on Friday. Going with a 50/1/1 STA and letting the market stop you out would have been very profitable, as the trade would have stopped out at 106.00, good for a sweet 9:1 reward-to-risk ratio!
Pretty awesome, eh? You could have probably bought one of those Nike Air McFlys with your winnings!
So did any of you capitalize on the euro weakness last week?