Trade Update: 2007-01-11 08:50

EURUSD spiked up this morning around 7:00 am EST, probably with the help of a surprise rate hike by the Bank of England to raise rates to 5.25% while ECB keeps rates at 3.50%. Our short trade was triggered at 1.3000 and pt1 was hit before Trichet's commentary. There was a lot to go through his speech, but basically he said the ECB will "monitor very closely all developments." This indicates a hike in March rather than February, and EURUSD dropped. Pt2 was easily hit for a day total of +70 pips!

1st Half: +20 pips
2nd Half: +50 pips
Total: +70 pips

Trade Idea 2007-01-11 01:10

With so much going on in the world and the different markets, how is a trader suppose to pick one good one? Easy! Just focus one the one event everyone else is watching! Of course, that would be the interest rate decisions tomorrow morning, most notably the ECB rate decision and commentary from ECB President Trichet.

I'm not even going to bother with a fundamental analysis and tell you what I think Trichet will say tomorrow because honestly...no one really knows! That's why we are seeing a consolidation in EUR/USD - traders are uncertain of what will happen. What I do know is when the market consolidates, volatility is right around the corner and we have to be ready for whatever may occur.

So, here's my current thought process... Greenback is still strong, especially with recent data indicating that the US economy is a little bit stronger than we all thought. But with the ECB interest rate decision tomorrow, we may see the Euro rise up, especially if Trichet is hawkish and indicates a rate hike next month. If EUR/USD rises up to 1.3000 (a strong psychological support-turned-resistance level), we will sell. Here's a trade idea:

Short EUR/USD at 1.3000, stop at 1.3040, pt1 at 1.2980, pt2 at 1.2950

Remember to never risk more that 1% of your account on any single trade, so please adjust your position sizes accordingly.

Check in later as we may have a new trade idea depending on Euro session price action and the outcome of tomorrow's decision.

Good luck and good trading!