Fading the FOMC Meeting Minutes Reaction – Closed

Trade Closed: 2013-07-23 22:30 ET

After a couple of weeks, it looks like EUR/USD traders finally made a decision on where to go next as the pair seems to be sustaining above the 1.3200 handle. Not so good for my trade as the market took me out of my short position.

Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.

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It looks like the “Taper” trade is unwinding as we’re starting to see mixed US data recently, with a slight lean towards weakness thanks to weaker-than-expected US housing data in the past week. Even though conditions are looking better in the US than Europe, it’s all about whether or not the Fed will tighten policy in September and right now, traders think it’s gonna be a no-go on bond purchasing reduction, which is why we’re seeing broad US Dollar weakness.

I held onto this trade on the idea that even with mixed data, the Taper trade unwind might be running out of steam at 1.3200; it sure was looking like it for a while. But it was yesterday’s weak report from the Richmond Federal Index that was the nail in the coffin for my trade. This report usually isn’t a big market mover, but during the thin summer market conditions and lack of other major news or economic data, it was enough to push the Greenback down. My trade was stopped out 1.3230.

Total: -138 pips/ -1.0% loss

In hindsight, I should have just closed out the trade last week as sentiment started shifting towards broad Greenback weakness. But my focus was on the fact that the US is probably still the “best looking house in an ugly neighborhood” scenario and that technicals may hold out at 1.3200. I had a couple of chances to close for very small pips, but I think holding on for bigger profits in this case was good trading practice. Sentiment could have easily shifted in my favor had data come in inline or better-than-expected.

Well, that stops a string of wins, but it was limited thanks to risk management and I can live to trade another day. It’s gonna be tough to find decent opportunities during the summer season, but I’ll keep my eyes open and let y’all know if I see something.

Thanks for checking out my blog everyone…good luck and good trading!

Trade Update: 2013-07-17 14:45 ET

Good afternoon forex friends! It’s been a slow market since I’ve put the trade on, but we eventually saw a bit more USD weakness to get me into my full position into Bernanke’s testimony to Congress today on monetary policy. So, what now?

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So, Big Ben spoke today, but there was little reaction in currencies as he re-iterated the same rhetoric as before (i.e., the “Taper” is data dependent). We did get a USD bounce higher, but that came mainly during the written release of his statement, a couple of hours before his spoken testimony to Congress. Overall, I get the impression that we’re still on track for a possible Taper in September, especially as we also got the Fed Beige Book today, which stated that the US economy grew at a “modest to moderate pace” in recent weeks.

Before today’s US events, EUR/USD popped higher, triggering my second half position at 1.3165, to put me in a full position with an average entry price of 1.3092. After Bernanke’s report to Congress, USD briefly rallied in my favor. And after hearing Bernanke’s testimony today, I think we will see short-term USD bullishness, probably until the next jobs data release in August. And given that eurozone data has been week in the last couple of weeks, including this Tuesday’s German ZEW Economic Sentiment, I think EUR/USD could creep lower from here.

So, I’m gonna hold onto my short position for now with no adjustment to exit orders, but we’ve got G20 meetings and plenty of eurozone data until the end of the month to watch closely. Thanks for checking out my blog everyone. Good luck and good trading!

Trade Idea: 2013-07-11 10:11 ET

Good morning! What a day for the Greenback after the markets react to yesterday’s FOMC meeting minutes. What’s different and has it really changed sentiment?

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The FOMC meeting minutes drew a little bit of uncertainty back into the mix as it seems the Fed isn’t as read to Taper as the market thought it would be. My main man Forex Gump broke the event down, and concluded that we may still see a ‘Fed Taper’ of bond purchases sometime in 2013 (you can read why in his post). I’m in the same camp that the probability is good that we’ll see it this year as US jobs data has been strong recently. I think the strong reaction was partly due to illiquid markets, and with the event now priced in through Asia and the morning European session, I am going to play short EUR/USD bias that I’ve talked about in previous posts, including this one.

I’m structuring this trade based on the idea that we probably won’t get another strong move in favor of the Dollar, like the one we saw over the past month since this isn’t a brand new event. I think barring any new surprise events, we’ll see ranging between 1.28 to 1.32 and/or a slow grind lower over the course of July. So I want to scale in between current levels and yesterday’s high area to build a position at a better price. This would give me an average entry at the 50% Fibonacci level on the chart above, and my stop will be 1/2 the weekly ATR from the average entry point. I’ll target the previously tested lows, but have a plan ready to go beyond that if Dollar strength picks up again. Here’s what I am doing:

Short half position at market 1.3020, stop at 1.3230, profit target at 1.2760

Short half position at 1.3165, stop at 1.3230, profit target at 1.2760.

Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.

This trade structure, if fully entered gives me a reward-to-risk potential of about 2.42:1. Of course, as the trade goes my way, I’ll look to trail my stop and add to my position, depending on what is driving currencies down the road. As always, if the story changes to invalidate my bias, then I’ll be sure to adjust quickly. Stay tuned by following me on Twitter and Facebook!

  • PipMeHappy

    Hello PipCrawler,

    your statement that “we’ll see ranging between 1.28 to 1.32 and/or a slow grind lower over the course of July. So I want to scale in between current levels and yesterday’s high area”

    makes perfect sense to me!
    Good luck on that Greenback horse! I will ride along but not at the moment, the dust is still kicking high behind its pipping heels!
    X

    • pipcrawler

      That’s what I think, but I could be wrong about the market staying in a range. 😀 It’s been volatile this year, so as with any year, anything can happen. Whatever your trade plan may be, keep your risk management tight!

  • liliku

    you must be happy now seing your profit

    • pipcrawler

      My upper order hasn’t triggered yet, so I’m down on half a position. I’m still debating on how to adjust this position given that USD sentiment has shifted, but there doesn’t seem to be strong conviction one way or another. I’ll give y’all an update soon 🙂