Pipcrawler

No surprise today as the European Central Bank followed market expectations by raising interest rates from 3.25% to 3.50%. We saw minor volatility afterwards as the pair moved in between a 40 pip range even. With the Eurozone’s strong economy and analysts expectations of a strong US jobs number tomorrow, EUR/USD will probably stay range bound for the rest of day as traders are uncertain of direction. So, no trade for today and we will get ready and focus for the US Non-Farm Payrolls report tomorrow at 8:30 am EST.

No “Pick of the Day” for the Euro trading session tonight as traders wait in anticipation for the Bank of England and European Central Bank interest rate decisions tomorrow.

We will focus mainly on the ECB’s decision and Trichet’s statement tomorrow morning, after which we will trade based on the market reaction of the widely expected raise from 3.25% to 3.5%. The key to tomorrow’s movement is whether or not Trichet will use a less hawkish tone, and the future projections of Eurozone growth and inflation will be closely watched as well.

The UK Industrial and manufacturing sector numbers came out worse that expected, after which Cable dropped as the manufacturing sector may have a negative impact on fourth quarter GDP. Our trade was triggered and we had hoped to play a range strategy. Unfortunately, the market dipped low enough to trigger our stop loss right before the pair shot back up, which eventually shot back up to hit pt1

In the next couple of trading sessions, traders are expecting a range bound market as there aren’t any significant economic reports to be released until the interest rate statements from the BOE and ECB, and the US Non-Farm Payroll release on Friday. We do have a couple of reports out of the UK that may be significant – Industrial Production and Manufacturing Production – both of which are released at 4:30 am EST.

I guess because of the new site and my ability to post trade updates on the site, I got a little crazy with today’s “Pick of the Day.” My analysis of the current market environment led me to believe that we would see a further drop as I expected a drop in the ISM service sector number.

I was away from my computer at the release of the ISM Non-Manufacturing Index number, which happened to come out better than expected at 58.9. 58.9!!! Great for Dollar bulls, but unfortunately not so good for my pick of the day. So, I wasn’t able to close the trade out right after the release and it looks like we took the full loss when the pair stopped out.

It looks like we got off to a good start for the month of December as we won our first trade. We used a different position management technique on this trade. We shorted one lot instead of the usual two and incorporated a wider stop loss level. This new trade style helped us weather a correction in USD/JPY before it dropped again after the weak ISM Manufacturing Index number at 10:00 am EST on Friday, and we managed to hit pt2 for +60 pips!

Can USD take anymore punishment? Well, in the long term it may have to. As the major central banks look to raise rates in the upcoming year, the Fed is expected to cut rates sometime in 2007, which makes buying into other major currencies much more attractive. In the short term, USD has just taken a nose-dive after Chicago PMI dropped to 49.9 from the previous 53.5. So we may see a range bound day tomorrow up until the US ISM Manufacturing Index number at 10:00 am EST.

Sorry if I seem cynical about last night’s trade in my chart review, but that’s how most of November felt for me. As mentioned in last night’s Pick, I said if the pair can sustain a move above 1.9545 it will move to the R2 at 1.9632. So, the pair shot up

Cable has risen for the ninth day in row against the Greenback, and with the pair touching a monthly high at 1.9549, there may be a great opportunity to short the overbought pair and get into a possible USD correction. If the pair breaks and sustains above the previous monthly high, then we may see the pair rally to the R2 pivot point line.