What a day for currencies as China’s read on various economic data points today brought out the beast every US Dollar seller fears–risk aversion. China’s inflation situation, coupled with weak UK CBI industrial trends data and positive US data lead to a couple of really nice plays in Cable and making it my “Pick of the Day.”
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As mentioned at the top, China was under the main spotlight today as it released a cornucopia of economic data earlier during the Asia trading session. Headlining amongst the bunch was inflation at 4.6% in December and the economy grew at a 9.8% rate in the 4th quarter. That’s breakneck speeds of growth folks, and traders began to speculate China would take actions to slow the economy before it gets out of control. That means commodities sold off, stocks took a hit, and the Greenback rallied across the board.
Major data from the UK and US that also littered the Forex calendar included the CBI industrial trends coming in much weaker than expected (-16 actual vs. -1 forecasted) to help push the Pound lower after its release and positive US initial claims (404k actual vs. 420k forecasted).
On the chart above, there was a sweet buy signal just ahead of the European session open. We can see a “morning doji star” like pattern at the previous day low (PDL)/bottom daily ATR (DATR) and the stochastic indicator showing oversold conditions. That move higher from the DATR maxed out at about a 100 pip move.
Next comes my choice for Pick of the Day. We saw the Major Psych level (MaPs) of 1.60 hold as resistance along with the day opening price (1.5989). Matched up with the overall market sentiment created by the China economic data released made for a really good short move that maxed out at about 160 pips from 1.6000…bam!
With about a 40 pip trailing stop and a properly executed scale in plan (as demonstrated at the end of this post), there was the potential of a 5:1 to 10:1 return on risk. That’s a sick return and I hope some of you Euro session traders got a piece of it.