Fading the Spanish Bank Bailout – Closed Trade

Trade Closed: 2012-06-15 07:35 ET

Good morning folks! Well, its been a whole week and EUR/USD is pretty much back where it started! With the weekend quickly approaching, as well as the major Greek vote, I think it would be prudent to take risk off of the table.

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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I’m still a big bear on the euro, but after doing a bit of thinking, I decided to close my half position opened at 1.2600 at market (1.2622) and close my open orders to short at 1.2700.

Half position: -22 pips/ -0.044% loss

Even though the results of this weekend’s election may not fix a thing that’s going on in Europe, a positive outcome could cause a huge weekend gap against me. It doesn’t make sense to me to leave it open, especially since I got out pretty much where I got in.

In retrospect, I probably should have taken profit on my half position at the 1.2500 area as my initial idea was to fade the Spanish bailout reaction from last weekend. I had a feeling that we would probably see rangebound movement ahead of this weekend’s big event, but I thought the market would consolidate around 1.2500 rather than rally higher to the week’s opening level.

Overall, I’m happy that my initial thesis was right, that 1.2600 area held and divergence proved to be a good short-term signal, I just should have take profit when the market ran out of steam at a major psychological area.

That’s it for me this week. For those going into the weekend with a position in the markets, be safe and good luck!

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Trade Idea: 2012-06-11 04:13 ET

Good morning forex friends! This past weekend, it looks like Spain will get a little bit of cash, ok maybe a lot of cash, to shore up it’s banking sector. As expected, this caused a big ol’ gap higher in EUR/USD, but will it last?

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To read more on the latest development in the Eurozone crisis, please read more on this weekend’s Spanish bailout by checking out Forex Gump’s article, “Will a ‘Bailout Lite’ Do the Trick for Spain?”

I like a short on the euro because I think a lot of traders will view this past weekend’s event as a short-term band-aid that didn’t fix the underlying problems of Spain and the debt crisis. I’m in that same camp as I think that not only is this just the beginning of the bailouts for Spain, but sticking to austerity plans will also hinder growth–IF they can stick to the plan. Frankly, it’s a monumental challenge to execute when we’re talking about whole countries…who really wants to do it?

So, I think we’ll see a short-term pop higher in EUR/USD on this development, possibly attracting sellers of the euro back in to play the longer-term, underlying picture of what is going on in Europe.

Technically, the pair is back up to test previous areas of interest that have served as support and resistance levels recently. I think the area between 1.2600 – 1.2700 is where we could see euro bears scale back into a short position–possibly even up to 1.2800. I’ll look to scale into this area, and with a wide stop of 200 pips from my average entry price, I look to target the previous week lows. Here’s what I am going to do:

Short half position EUR/USD at 1.2600, stop at 1.2850, profit target at 1.2300

Short half position EUR/USD at 1.2700, stop at 1.2850, profit target at 1.2300

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

If both positions are entered, this trade structure gives me a potential return-on-risk of about 1.75:1. Of course, with so many different issues around the globe to affect risk sentiment, especially the upcoming Greek vote, I’ll be sure to keep a close eye on the markets and events with our trusty forex calendar. If we do get an event to shift sentiment in favor of the euro vs. the greenback, I’ll be sure to adjust quickly. Be sure to follow me on Twitter and Facebook for market observations, updates, and adjustments.

Thanks for checking out my blog; good luck and good trading!