S&P Downgrade Warning Gonna Be a Downer for the Euro? – Trade Closed

Trade Closed: 2011-12-06 17:57 ET

As expected, we had a range bound day in EUR/USD, but with economic updates and major news reports, there was enough price action to trigger one of my trade setups and close 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.

PCDPOD20111206.review.png

As I mentioned in my trade idea, the euro sold off at the open of the Asia (where my trade was triggered at 1.3370) and German/London sessions as those traders got to price in the news of a potential S&P downgrade of multiple European country’s credit ratings. Unfortunately for my trade, that sentiment didn’t last for too long as weak Swiss inflation data sparked big capital flow from Swiss Francs to the euro, pushing the euro higher across the board in general. I also think that euro bulls probably felt that the S&P news reaction would be short lived, and were ready to jump back in long to take advantage of the oversold conditions.

Whatever the exact reason may be, the move higher was capped off with a big upside surprise for the German Factory Orders (+5.2% vs. +0.9% forecast). This provided the final push to trigger my stop at 1.3415 and close out my position. And since it’s the end of the Tuesday session, I have closed my open short orders on EUR/USD at 1.3485.

Total: -45 pips/ -0.25% loss

Looking back, I definitely made the mistake of not considering that the Swiss CPI report wouldn’t have multi-market effects. Well, I’m not too sure if I should call it a mistake, but I definitely know now to go back and look at past Swissy CPI reports and its effects. This may be a recurring behavior that I should be aware of and avoid making the same mistake in the future.

Besides that, I think I did a great job of calling the range bound conditions and that we’d see sell offs in the Asia and European session. I just need to do a better job of trade execution and using tight stops! Haha!

So, a tiny loss for me today, but the week is just getting started. I’ll look to do another day trade/range play ahead of the European summit and ECB decision this week, so stay tuned for my ideas and updates by following me on Twitter and Facebook!

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Trade Idea: 2011-12-05 17:57 ET

Good evening forex friends! We just got news late in the US session that S&P put 15 European nations on review for a possible downgrade. Is a bad session in the cards for the euro?

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

PCDPOD20111206.png

Now, I’m not one to really put stock into what S&P says given how they always seem late to the party, but for some reason the market continues to listen to the ratings agency. As soon as the announcement came out (read more on Bloomberg), the euro did drop on a broad base, including a near 70 pip dip against the Greenback.

It seems that this news has trumped the Italian austerity news and “Merkozy” treaty proposed today, and given that the S&P warning came out towards the close of the US session, I think the euro negative sentiment may continue as Asia and Europe gets their chance to trade the news. Also, given that we are lacking European and US data for the upcoming session, I also think we may see a bit of rangebound conditions, especially ahead of the big European summit on Dec. 9th. With this in mind, I’d like to go short for a day trade to play the range if we see a bounce higher.

On the 15 minute chart above, I’ll look to pull the short trigger on a retest of Monday’s highs. We also can see a potential consolidation/breakout play forming after that strong move lower. I’m actually looking to set orders to play both setups, and since this is a day trade, I’ll lower my risk per trade to 0.25%. Here’s what I am going to do:

Short EUR/USD at 1.3485, stop at 1.3530, pt at 1.3375

and

Short EUR/USD at 1.3370, stop at 1.3415, pt at 1.3280

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

Both orders give me a potential return-on-risk of 2:1, so my max loss today won’t be more than 0.50% of my account–nice and small.

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!