Shorting the Greenback Ahead of QE3 – Closed Open Orders

Closed Open Orders: 2012-09-12 8:38 ET

Good morning forex friends! It looks like I got pretty lucky with my directional bias, but not so lucky on how deep the pullback would be.

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

PCDPOD20120910.review.png

As we can see from the chart above, there wasn’t much of a pullback at all before more sell orders came in to push USD/CHF lower. With the potentially volatile FOMC statement coming tomorrow, and my targets already being hit, I’ve decided to close my open orders to short USD/CHF at .9500 and .9560. No trade.

In retrospect, it looks like I made a mistake falling back to my old technique of “waiting for a better price to get in.” The new method of scaling in at market had been working for me as of late, except for my last trade in USD/JPY. So, maybe the recency bias got the best of me this time, but then again it’s only one trade in the grand scheme of things so I won’t let it get to me.

That’s it for today, and probably for the week as we do have the big FOMC rate decision tomorrow. Will they announce QE3 or not? No one knows, but whatever the decision may be, it’ll probably be good for sweet short and longer-term volatility. Stay focused, good luck and good trading!

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Trade Idea: 2012-09-10 13:10 ET

Welcome to another big week in the forex markets! After reading Forex Gump’s thoughts for QE3, I think I like the technical short setup forming on USD/CHF. Check it out!

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

PCDPOD20120910.png

As I mentioned above, Forex Gump made a case for QE3 after the weaker-than-expected US employment data last Friday. Even though I don’t think it’s a good idea, it’s what the market expects, so I gotta go with the flow right? For this week’s trade, I’ll short the Greenback on that expectation. I like that against the Swiss Franc after reading Pip Diddy’s report on Switzerland that “the SNB might no longer be able to afford to keep intervening in the foreign exchange markets” and keep the Swiss Franc from rising.

On the 60 minute chart above of USD/CHF, I’ve highlighted areas of potential resistance, which happens to line up with the Fibonacci retracement levels drawn on the chart. And given that we’re seeing bullish divergence between the price action and the stochastic indicator, we just might see the major psychological area of .9500 this week. If we do, I look to short the pair in that area, with my stop above the upper resistance area and an ambitious target due to the potential volatility the FOMC may bring. Here’s what I’m going to do.

Short half position USD/CHF at .9500, stop at .9615, profit target at .9360

Short half position USD/CHF at .9560, stop at .9615, profit target at .9360

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 reward-to-risk of 2:1.

I like this trade not only for the probability of seeing QE3, but also on the rise in risk sentiment (usually not good for USD) thanks to the new ECB bond buying program. Finally, the German Constitutional ruling is expected to decide in favor of Germany participating in the European Stability Mechanism this Wednesday; again most likely bullish on risk.

Even with expectations in favor of USD decline this week, as the saying goes, “anything can happen in the markets.” If we see events turn away from expectations, I’ll be sure to quickly adjust. Follow me on Twitter and Facebook for updates and adjustments. Good luck, good trading, and thanks for checking out my blog!

  • Atheis Mei

    i’m opposite with your view :)

    • pipcrawler

      That’s cool… that’s what makes a market :) Good luck to ya!

  • Arcturis

    Yeah I pretty much did the same exact trade going Long on the EUR/USD because of the peg.
    Mine were stopped out by that second to last green wick on the 1hr

  • ketul

    bang on target…thanks :)