Pick of the Day: EUR/USD – Close Trade

Close Trade: 2008-07-012 10:41

EUR/USD rose and then fell below 1.58 throughout the morning European trading session, but with private US employment data coming out worse than expected, reporting a loss of 79K jobs and a revision of last month’s number to 25K, the US Dollar sold off in the morning US trading session.

I am surprised at the market’s reaction as the ADP number usually doesn’t have this much kick and I felt that job losses were already baked in…. I guess not. So, I have decided to just close this one out, take my loss, and move on.

Close at market (1.5865)

Total: -65 pips/ -0.65%

Trade Idea: 2008-07-01 18:23

PoD Chart

The EUR/USD markets have been in a range for the last couple of months, and with the pair rallying for the past couple of weeks, we’re back at the top of resistance around 1.58. Will resistance hold and send the pair lower?

Today’s chart is pretty clear cut as I threw up a daily chart on EUR/USD with horizontal lines drawn to outline the range as mentioned before. The key to the success of this trade idea is what is already priced in and what may happen for the rest of the week.

First, let’s look at some fundies. It’s widely speculated that the ECB will raise rates to 4.25% on Thursday as Eurozone inflation continues to climb higher. This is probably already priced into EUR/USD, accounting for the rally in the pair over the past couple of weeks, but the question now is will it be “one and done” or will the ECB stick to its only mandate of price stability and remain hawkish? It’s a tough question that I’d rather not answer, so I’ll leave it for the economists to answer and just wait to see what happens.

I’m going to focus on the chart and the current trading environment. As we can see on the daily chart, the pair has remained in a 500 pip range for the last couple of months. We’re at the top now, around 1.58, where it has held and reversed twice before in that time period. So, a range play makes sense to me, and unless the fundamentals become clearer as far as growth and interest rate expectations from both the Eurozone and US, this ranging behavior may continue.

So, I’d like to see if we can get a slightly better price than current market, and target the middle of the range, possibly holding out for a move to the bottom. If we are in this trade on Thursday, I may make adjustments ahead of the ECB interest rate statement.

Short EUR/USD at 1.5800, stop at 1.5900, pt1 at 1.5700, pt2 at 1.5600

Remember to never risk more than 1% of your account on any single trade. Adjust position sizes accordingly.

Again, if the momentum is strong, I will trail stops if we reach 1.5600 and go for the bottom of the range. We also have US Jobs data coming up at the end of the short week, but let’s get over a Trichet speech tonight and the ECB rate decision first before tackling that monster.

Stay tuned, good luck and good trading!

On a side note…Don’t forget to check out Freshpips.com! Forex news picked by Forex traders! Let’s help each other out find what moves the markets…See ya there!

  • pakiestra

    Hmm, overall I can see your point Pipcrawler. Let’s have a closer look. The strategy is counter trend but on the other hand you have right, now the pair is close to the resistance on the 1H rising channel so even going with a trend there is a chance the pair goes down. However the same 1H chart shows nice uprising channel and 4 Elliot waves. Wave 1 top on 17/06, wave 2 bottom on 23/06, the strongest wave 3 top on 30/06 (tested 1.5800) and now we are in wave 4 (probably until Thursday ranging between 1.5730-1.5800), time for a wave 5 (I agree may not be very strong -but this babes are unpredictable). I’m on the long side of with S/L below 1.5680 and test of 1.6000 highs.

  • pakiestra

    Hmm, overall I can see your point Pipcrawler. Let’s have a closer look. The strategy is counter trend but on the other hand you have right, now the pair is close to the resistance on the 1H rising channel so even going with a trend there is a chance the pair goes down. However the same 1H chart shows nice uprising channel and 4 Elliot waves. Wave 1 top on 17/06, wave 2 bottom on 23/06, the strongest wave 3 top on 30/06 (tested 1.5800) and now we are in wave 4 (probably until Thursday ranging between 1.5730-1.5800), time for a wave 5 (I agree may not be very strong -but this babes are unpredictable). I’m on the long side of with S/L below 1.5680 and test of 1.6000 highs.

  • Pipcrawler

    Thanks for the input pakiestra… I don’t practice elliot wave theory much, but I wish you good luck and good trading!

  • Pipcrawler

    Thanks for the input pakiestra… I don’t practice elliot wave theory much, but I wish you good luck and good trading!

  • neadercash

    This is the second time I visited your site. I had identified the same trade but and grossly underestimated the movement here, so a big thankyou to you, I realized a profit worthy of a life goal we unknowingly shared.
    Electrons/Photons = Faith = ‘money’ = Virtual

  • neadercash

    This is the second time I visited your site. I had identified the same trade but and grossly underestimated the movement here, so a big thankyou to you, I realized a profit worthy of a life goal we unknowingly shared.
    Electrons/Photons = Faith = ‘money’ = Virtual