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Trade Idea: 2010-08-22 11:10

PoD Chart

Great. So much for trying to get in on a retracement! EURCHF just made a new low, so it’s time to cancel this trade!

Risk aversion came back strongly, and once again, the euro took a hit across the board. Coupling this in with the franc’s renewed role as a safe haven currency, it was another bloody week for EURCHF. The pair dropped another 250 pips from its opening price!

Unfortunately for me, this left me untriggered. The pair only rose back up to 1.3450 before shooting down. I suppose I could have been a little more aggressive on this trade and possibly zoomed in to a shorter time frame to find a better entry point. I really just didn’t expect this sucker to drop so quickly!

It might be a little tricky to trade this pair now, as it is approaching the all time low set a few months back at 1.3075. Could that be a good place to buy? I’m going to have to do some reading and gauge market sentiment before I jump into any trades this week.

Trade Idea: 2010-08-18 03:40

PoD Chart

After dropping like Lebron’s popularity last week, it looks like EURCHF is starting to retrace a bit. I think this is a good opportunity for me to go short this pair.

Fundamentally, I do believe that we are seeing more uncertainty in the markets. This could be the beginning of the return of risk aversion and with all the mixed news that’s been coming out, I think even more uncertainty is starting to brew.

Just look at yesterday’s ZEW reports. While the euro zone version came in slightly better than expected, the German version failed to hit analysts’ targets. If Germany, who has the largest economy in the euro zone, is predicted to struggle in coming months, I dare say that this negative sentiment may just spill over onto it’s neighboring countries.

There have also been some recent concerns regarding Portugal and Greece, who’s banks had to borrow more than usual from the ECB this past July. Perhaps those stress tests were a little too lenient eh?

Meanwhile, the franc has remained resilient, backed up by an improving economy and its reprisal of an old role as a safe haven currency. This is why I’m picking to short EURCHF as opposed to EURJPY. Yen pairs have been all over the place as some are concerned of potential intervention by the BOJ. I’d rather stay out of that until I hear more concrete statements regarding this issue.

On the other hand, it seems that the SNB has loosened its stance on any verbal intervention. In fact, SNB Vice President Thomas Jordan has said that the central bank may consider dumping some of their euro denominated assets, as they lost considerable value thanks to the euro’s drop across the board last week. If they do this in the future, it may add fuel to the EURCHF’s downtrend.

Technically, I see that the pair is slowly retracing and actually rose yesterday. Now, if you look at the chart, you’ll see that stochastics just almost hit overbought conditions, but I do think that the pair has room to rise. Looking at the daily, price just exited the oversold territory, so we could see buyers jump in and push the pair slightly higher.

I decided to pop on the Fibonacci tool to help me spot some good entry points. I see that the 38.2% Fibonacci level lines up with a former low and there appears to be interest around 1.3520, so I’ll be putting my first sell order there. Now, I do think there’s a chance that pair may climb even higher, so I’ll be scaling into this position, and I’m going to add at the 50.0% and 61.8% Fib levels as well, as these also appear to line up with areas of interest in the past.

Now if all my entries get triggered, I’ll have an average price of 1.3590. I’ve put my stop past the next Fib level at 1.3800 giving me a stop of 210 pips if all my order trigger.

Now, my entries are a little further off, but I do think we could see the pair rise and at least trigger my first entry. So far, it isn’t clear whether its risk appetite or aversion that’s the central theme dominating the market right now. We may not see as strong moves as we did last week, and after last week’s sharp drop in EURCHF, I’m looking to get in on a pull back.

Again, here’s my game plan:

Short EURCHF at 1.3520, 1.3590 and 1.3670. My ultimate stop will be at 1.3940. My first take profit will be at 1.3270, and I’ll be aiming for the all time low at 1.3100.

Now, this is a longer term trade, so I’m going to have to be very patient on this one. At the same time though, I’m going to have to make quick adjustment. You never know when sentiment will overwhelm the market and everyone starts putting their money back into higher yielding currencies.

Thanks for reading my blog! Hopefully I hit this one out of the park like an A-Rod home run! Cmon, 600 HRs is no easy task!

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