Shorting the EURUSD on a Break – Closed Open Order

Closed Open Order: 2010-02-16 21:29

PoD Chart

Whee! A breakout on the EURUSD! But, unfortunately, the pair broke out to the topside, opposite of what I was expecting. Germany’s and the euro zone’s Zew economic sentiment indexes indeed dipped further below 50.0. Germany’s index fell to 45.1 from 47.2 while the entire euro zone’s account also slid to 40.2 from 46.4.

Still, risk appetite came back in stride yesterday as strong economic figures from the US and a 3.9% spike in crude oil prices spurred investors to pursue higher-yielding currencies. As a result, the EURUSD flew all the way up to a high of 1.3780, which is more than a hundred pips away from my entry order. I guess I’ll have to close my open order then. Good thing I set my short order far below the minor support on the 1-hour chart. Phew!

Trade idea: 2010-02-15 21:57

PoD Chart

I’ve been doing some reading and it seems that traders are still bearish on the euro as there is so much uncertainty regarding Greece. If European leaders fail to release a concrete plan to help Greece, sentiment could disintegrate further than it already has. After all, the euro dropped last Friday largely because of the poor GDP figures indicating that growth was almost non existent in the euro zone last quarter.

Looking at the economic calender, it looks like the ZEW economic sentiment reports will be released today. Both the German and the euro zone wide versions are expected to dip further away from the 50.0 mark. If the index falls further, it could cause traders to sell the euro, which would play right into my break out idea.

Technically, I noticed that the pair has been consolidating for quite a while. It has been stuck in a range, with support around 1.3580 and resistance at 1.3635. Could it be revving up for a strong move downwards? I’m hoping to catch a breakout to the downside so I will be shorting 10 pips below the pair’s previous day low of 1.3580. Since I’m going for a quick day trade, I will take profits at the 1.3530 level, which is the previous week low. I also placed another profit target at the psychological 1.3500 handle. I’ll set my stop 5 pips above the minor resistance around 1.3635.

Here’s what I will do:

Short at 1.3570, pt1 at 1.3530, pt2 at 1.3500, stop at 1.3640.

  • PabloFrancesca

    Seems like a pretty good idea. I’m short at 1.3650. ZEW still came in trending lower. Nice candle formation after the pair hit the 50% retracement from the February 12th low to the February 9th high. Let’s hope that equities don’t rally.

  • Buckscoder

    I may be wrong, but I guess the eurusd will still trade in a channel from 1.35xx to 1.38xx. If you look at the last retrace in D1, it took 2 weeks or so until the retracement was completely over. If it goes down fast, it needs big money and big money acts smart. If it acts smart, it will not sell all in one deal, but in pieces. So, my orders are lurking that the eurusd leaves this channel to the south. Orders on top of the channel, if I am right and at the bottom if I am a bit wrong with time prediction. At least I guess the eurusd will move farther down.

  • Huck

    Guys, it looks like the sidewards channel did break out… but to the upside! :( We’ll get those EURUSD bulls next time!

  • PabloFrancesca

    Seems like a pretty good idea. I’m short at 1.3650. ZEW still came in trending lower. Nice candle formation after the pair hit the 50% retracement from the February 12th low to the February 9th high. Let’s hope that equities don’t rally.

  • PabloFrancesca

    and of course, equities rallied.

  • Buckscoder

    I may be wrong, but I guess the eurusd will still trade in a channel from 1.35xx to 1.38xx. If you look at the last retrace in D1, it took 2 weeks or so until the retracement was completely over. If it goes down fast, it needs big money and big money acts smart. If it acts smart, it will not sell all in one deal, but in pieces. So, my orders are lurking that the eurusd leaves this channel to the south. Orders on top of the channel, if I am right and at the bottom if I am a bit wrong with time prediction. At least I guess the eurusd will move farther down.

  • Huck

    Guys, it looks like the sidewards channel did break out… but to the upside! :( We’ll get those EURUSD bulls next time!

  • PabloFrancesca

    and of course, equities rallied.

  • 36lima

    Quick question (and I’m new and learning so be gentle), since you were looking at a ranging market and expecting a breakout is there a reason you did not set an entry at both a short and a long position above and below the current range?

    Just curious what your view on that approach is and why you did not choose to go that route (instead of looking specifically for a break to the short side). Was it because of the overall downward trend on the larger timeframe?

    Thanks,
    Kelly

  • sunglow

    I think that your trading idea was right, but it was upset by all the speculation surrounding the situation in Greece. However, the fundamnetal problems with the Euro have not gone away and your trade could be still on in the not too distant future. I notice that the Euro has continued to drift down all this morning (GMT), so keep an eye open for it making your downward breakout.

  • 36lima

    Quick question (and I’m new and learning so be gentle), since you were looking at a ranging market and expecting a breakout is there a reason you did not set an entry at both a short and a long position above and below the current range?

    Just curious what your view on that approach is and why you did not choose to go that route (instead of looking specifically for a break to the short side). Was it because of the overall downward trend on the larger timeframe?

    Thanks,
    Kelly

  • Buckscoder

    Well, I was not wrong. Another big chunk of profit for my basket. As I mentioned: Look at D1 chart. The retrace channel 1.38xx 1.35xx is still there. I bet the breakout of this wider channel will go south. Sooner or later.

  • sunglow

    I think that your trading idea was right, but it was upset by all the speculation surrounding the situation in Greece. However, the fundamnetal problems with the Euro have not gone away and your trade could be still on in the not too distant future. I notice that the Euro has continued to drift down all this morning (GMT), so keep an eye open for it making your downward breakout.

  • Buckscoder

    Well, I was not wrong. Another big chunk of profit for my basket. As I mentioned: Look at D1 chart. The retrace channel 1.38xx 1.35xx is still there. I bet the breakout of this wider channel will go south. Sooner or later.

  • Huck

    @36lima Well, if I were to only look at technicals, I would’ve probably gone long too on the break but the euro zone’s economic environment and all this Greece debt concerns tells me that the euro is generally weak.. The euro has also been on an extended downtrend for quite awhile now, telling me that a downward break would’ve been the higher probability trade! @Buckscoder Good job! I already took out my open orders yesterday so I’m feeling disappointed with myself for missing it :(

  • Buckscoder

    @Huck: Thanks a lot! Don’t feel disappointed. 0 cent profit is better than 1 cent loss and I missed opportunities, too. ;) It always needs a bit of luck to be right, right? Could have been also my stops would hit. I had a tight risk set. Now I am out with profit and we are again in the same boat. Just look at this other retracement channel in D1 a couple of weeks ago. Might be a bit like this until it breaks. It looks like. Some more opportunities to come. If it leaves the channel to the south, even better. If it goes up higher, risk management should take care of it. You have a good one! :)

  • 36lima

    @Huck – Understood and thanks for the explanation. As I’m still formulating my strategy, I’m thinking it doesn’t hurt to hedge my bets. However, I can definitely understand your thinking. Thanks again!

  • Huck

    @36lima Well, if I were to only look at technicals, I would’ve probably gone long too on the break but the euro zone’s economic environment and all this Greece debt concerns tells me that the euro is generally weak.. The euro has also been on an extended downtrend for quite awhile now, telling me that a downward break would’ve been the higher probability trade! @Buckscoder Good job! I already took out my open orders yesterday so I’m feeling disappointed with myself for missing it :(

  • Buckscoder

    @Huck: Thanks a lot! Don’t feel disappointed. 0 cent profit is better than 1 cent loss and I missed opportunities, too. ;) It always needs a bit of luck to be right, right? Could have been also my stops would hit. I had a tight risk set. Now I am out with profit and we are again in the same boat. Just look at this other retracement channel in D1 a couple of weeks ago. Might be a bit like this until it breaks. It looks like. Some more opportunities to come. If it leaves the channel to the south, even better. If it goes up higher, risk management should take care of it. You have a good one! :)

  • 36lima

    @Huck – Understood and thanks for the explanation. As I’m still formulating my strategy, I’m thinking it doesn’t hurt to hedge my bets. However, I can definitely understand your thinking. Thanks again!

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