Trade Closed: 2011-11-30 10:33 ET
Good morning forex friends! And it’s definitely a good morning for risk-on players as we saw a surprising string of catalysts, most notably the monster news of a coordinated central bank effort to provide liquidity to European banks. Unfortunately, this was not good for the Greenback…
Before you move on, for those who are not familiar with my framework, signals, setups, or acronyms, please visit my discretionary trading framework blog.
This morning, we got risk-on positive data in the form of China lowering it’s Reserve Requirement Ratio (from 21.5% to 21.0%) and a positive US ADP jobs report (+206K vs +130K forecast). As mentioned earlier, the big bang to volatility came from a coordinated intervention to lower swap rates (read more here: Fed lowers Interest Rate on Dollar Swaps). Basically, European banks need to borrow dollars to fund dollar denominated assets and operations, and the market for that has dried up. This action will hopefully bring back some liquidity.
This was taken as very bullish for risk-on assets, meaning traders moved capital out of the safe haven of US assets, including the Greenback. As we can see in the chart above, USD/JPY was no exception as the pair instantly dropped, fast and far enough to stop me out.
Total: -35 pips/ -1.0% loss
In retrospect, there’s probably nothing I could have done differently. My trade was going well on it’s way to a nice profit (already up 1%) when this out of the blue news came out. As they always say, anything can happen and we saw a fine example of that today. And it’s another example of how topsy-turvy this market is. Risk management is more crucial than ever in this environment and I’m glad I got out when I did because this sentiment could last for the next few sessions and take USD/JPY much lower.
This doesn’t change my view that the financial markets are still in trouble. After all, central banks are providing more liquidity rather than our governments finding ways to fix the massive debt problem that no one is really willing to tackle. But, regardless of my biases, I gotta go with the flow and market sentiment.
Overall, I thought I planned and executed this trade well, the market just didn’t go my way. Thanks for checking out my blog and please leave your thoughts in the comment box below. I’d love to hear’em and hopefully learn something new from you. Good luck and good trading!
Trade Idea: 2011-11-28 18:35 ET
Good evening forex friends! Last week, we saw USD/JPY start a new trend higher during a very rough week for risk takers. Will the trend continue given the uncertainty of Europe and the efforts of the BoJ to keep the yen down?
Today, I threw up the one hour chart on USD/JPY and we can see a nice little trend higher since the start of last week. This can be attributed to the flow of capital to the safe haven of US assets during last week’s market risk selloff, as well as the sentiment that the Bank of Japan will continue to do what it takes, like stealth intervention, to devalue the yen from it’s high levels. With no hard plans yet made to help the eurozone crisis, I believe this trend will continue unless we get a new major catalyst.
So on the chart above, I marked a potential short-term buy area in which I’ll be going long, framed by the broken resistance-turned-support (77.80) and the next minor support level at the week open price (77.55). We’ve see shallow retracements lately, so I’ll go aggressive by jumping in at the top of that area. My stop will be below the next support level and I will target the next minor resistance level, around 78.40, an area of minor interest after the last BoJ intervention. Here’s what I’m going to do:
Long USD/JPY at 77.80, stop at 77.45, pt at 78.40.
Remember to never risk more than 1% of a trading account on any single trade. Adjust position sizes accordingly. Risk Disclosure.
This trade setup gives me a potential return-on-risk of about 1.7:1, potentially more if I scale into a winning position.
As always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!