They say that hindsight is 20/20. With many of our forex trading friends closing shop for a long weekend ahead, let’s take time to look back on the first three months of 2016 and see the biggest trade opportunities that could’ve easily been your “trade of the year.”
Since the best trades are usually the ones that have fundamental, technical, and sentiment analyses mixed in, I picked the brains of my fellow FX-Men to identify the best trading opportunities for each currency move. We also used simple risk-taking strategies so our forex newbie readers can appreciate the charts that we’re seeing. Here goes!
USD/JPY ignores the BOJ’s “NIRP”
For the first time in history, the Bank of Japan (BOJ) had implemented a negative interest rate policy (NIRP) to boost inflation. The yen bulls weren’t impressed though, and soon oil oversupply concerns, the lack of action from OPEC, as well as dovish speeches from the FOMC members dragged USD/JPY down to fresh 2016 lows.
1. Short at 121.00. The level was a significant support/resistance area for a good part of 2015 and there was no follow through on the uptrend despite the BOJ’s unprecedented move. A 200-pip trailing stop would’ve taken you out at 113 with a 4:1 reward-to-risk ratio. Yowza!
2. Short at the break of the 117.00 support. A short at 116.50 with a 200-pip stop would’ve given you a 2.75:1 trade if you had taken profits at the 111.00 support.
Kudos to Huck for catching some of the action!
AUD/USD’s mega-reversal in mid-January
Concerns over China’s growth and equities market dragged AUD/USD by a good 450 pips (-6.16%) in the first 15 days of the year. The trend didn’t last, however, as China’s concerns eased and commodity prices recovered. In March AUD/USD’s uptrend was further boosted by a dovish Fed and a not-so-dovish RBA decision.
1. Long at the retest of a broken double bottom neckline. A long at .6950 with a 150-pip stop (below the January lows) would’ve gotten you a 4.33:1 trade if you had closed at the .7600 area. The R:R would’ve ballooned to 8:1 if you had adjusted your initial stop to break even and added at the pullback to .7050.
2. Long at the pullback to .7050. A 100-pip stop (below .7000 MaPs) would’ve given you a 5.5:1 if you had taken profits at .7600.
3. Long at a break above the .7250 resistance. A 100-pip trailing stop would’ve taken you out at .7494 and given you a 2.44:1 trade.
USD/CAD’s slippery slope
USD/CAD got hit hard by China’s concerns early in the year. Add to that the oil oversupply concerns and we’re looking at an 850-pip (+6.13%) surge by mid-January. Luckily for the Loonie bulls, talks of possible oil production freezes, technical buying for oil, a surprisingly optimistic Bank of Canada (BOC), and a dovish Fed all contributed to a slow and steady slippery slope for the pair.
1. Short at 1.4350 near a previous resistance and 38.2% Fib. A 400-pip trailing stop would’ve kept you in this downtrend with at least a 3.38:1 reward-to-risk ratio.
2. Short at 1.4100 near a 50% Fib and previous support. A 300-pip stop would’ve given you a 3.67:1 trade if you had taken profits at 1.3000.
3. Short at 1.3950 on another Fib retracement. A 250-pip stop (above previous highs) would’ve yielded you a 3.8:1 trade at 1.3000.
4. Short at a break below the 1.3700 support. A 250-pip stop would’ve given you a 2.8:1 trade at 1.3000.
GBP/CAD’s back-to-back breakout
The pound and the Loonie’s stalemate started going in favor of the Loonie after the BOC decided against a rate cut. The pair’s downtrend was further fueled by Brexit concerns, the BOC’s optimism, and a slow but steady recovery in oil prices.
1. Short at 2.0700. The retest formed the “double” part of a double top just after the BOC decided against a rate cut. A 350-pip stop would’ve given you a 5.7:1 trade if you had closed at the 1.8700 support.
2. Short at the 2.0300 neckline retest. A 350-pip trailing stop would’ve taken you out at 1.9026 with a risk ratio of 3.6:1. This strategy works well for setups like Happy Pip’s where a breakout isn’t likely.
3. Short at the wedge breakout. A short at 1.9850 with a stop above the wedge (500 pips) would’ve yielded a 2.3:1 trade if closed at 1.8700.
4. Short at the 38.2% Fib retracement. A short at 1.9800 with a stop above the Fibs (350 pips) would’ve given you a 3.14:1 trade if closed at the 1.8700 support.
EUR/JPY slides on JPY strength
EUR/JPY broke above its January range when the BOJ surprisingly implemented negative interest rates. However, overall risk aversion as well as threats of more easing from Draghi soon dragged the common currency lower until the ECB actually published its policy changes and disappointed the euro bears.
1. Short at the 130.00. Retest of a broken descending triangle + falling trend line retest + 50% Fib retracement on a major psychological handle. A 250-pip stop would’ve gotten you a 3:1 trade if you had taken profits at the 122.50 support.
2. Short at new 2016 lows. A short at 126.00 would’ve given you a decent 1.4:1 trade if you had placed a 250-pip stop and closed at the retest of 122.50.
EUR/AUD’s double breakout story
EUR/AUD took advantage of China’s economic woes early in the year, but was limited by recoveries in commodity prices and threats of more ECB easing. The pair broke its range in mid-February on the back of weak euro zone PMIs and diverging monetary policies and stayed on a downtrend until the ECB printed its new plans.
1. Short at the 1.6000 MaPs. Talks of the OPEC making production compromises was gaining traction. The double top area was also a previous resistance for the pair. A 300-pip stop would’ve yielded a 4:1 trade if you had taken profits at the 1.4800 consolidation area. A 250-pip trailing stop would’ve also yielded a nice 5:1 trade.
2. Short at 1.5400. The area is a previously strong support level and was lining up with a 38.2% Fib. A 250-pip stop would’ve given you a 2.4:1 trade if you had closed at 1.4800. A 250-pip trailing stop would’ve also given you a 2.7:1 trade.
That’s it for our price action recap for Q1 2016! Which currency pair were you able to get some pips from in the last few months? Do you have any other setups that you’d like to add to the mix? Let us know with your comments!