Trade Closed: 2012-02-07 14:53 ET
It was the combination of events from both Europe and the US to finally push traders to finally break the 1.3200 level.
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
First, we got rumors or reports that Greece was working on the final draft of an 130B euro bailout agreement. Of course, this is what traders have been waiting for, so while it wasn’t a big pop higher, there was steady risk-on buying, and EUR/USD rally, after the announcement early in the US trading session.
Next came US Fed Chairman Bernanke’s testimony to the US Senate Budget Committee, which was identical to his testimony last week to the House. He cited that the labor market still had a long way to go, which surprised some after the “stellar” US jobs numbers last Friday. Traders took this as the Fed showing that’s ready to do anything to keep the economy afloat; maybe even more quantitative easing.
After the Greek event, my trade was triggered and for second it looked like 1.32 was gonna hold. Unfortunately, this wasn’t the case, and I decided to not wait to be stopped out to get out of the position and closed manually at 1.3237.
Total: -42 pips/ -0.32% loss
In retrospect, I probably should have gotten out as soon as the Greek final draft announcement was made, but like the previous promises of a deal being done, I was skeptical of anything really happening. Also, I think the bulk of the later move was from Bernanke’s testimony, which I must say I didn’t give much thought to ahead of time. He already said what he said to the House, so what could possibly for his Senate testimony in a week? Overall, I’m happy with the planning and execution of the trade, but I could have hopped out just a bit early for a much smaller loss.
Trade Idea: 2012-02-06 18:20 ET
I’m keeping it really simple with my first trade of the week. It looks like traders aren’t ready to take EUR/USD anywhere as Greek debt deal talks continue to drag on. Seeing as how I think this may continue for quite some time, probably until March 20 when Greece has to drop a 14.5B euro payment, I’m gonna play the range for a swing/day trade.
The range is clear on the 60 minute chart above and if the market does retest the 1.3200 above, I’ll look to go short there. My stop will be about the daily ATR, and I will target Monday’s lows. Here’s what I am going to do:
This trade structure gives me a potential 2.5:1 return-on-risk, and with event risk this week on the forex calendar (most notably the ECB interest rate meeting), I am reducing my risk to 0.50% of my account. If the trade does work out my way, I may hold on longer and possibly scale into it, giving me a higher potential return-on-risk.
Given my negative bias on the European debt situation, I’m more reluctant to take a long trade, but if the behavior is right on another retest of the bottom of that range, I’ll look to go in. And as always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!