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Trade Closed: 2011-03-25 22:45

It looks like euro sentiment continues to remain fluid as the market shifted gears on speculation that the potential ECB interest rate hikes outweigh the sovereign debt issues and credit downgrades. Needless to say, this didn’t work out too well for my day trade….

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

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The only good thing I can say about my trade idea was that the bullish divergence spotted yesterday was on the money in calling a short term rally. Unfortunately, that rally proved to be a doozy.

The pair did find temporary resistance around 1.4150, and my trade even found a little bit of help from the weak US durable goods data (-0.9% vs. 1.2% forecast) and inline initial claims number (382k vs 383k forecast) as the pair came within a few pips of retesting 1.4100. But it was the shift in sentiment from the ECB rate hike speculation that did my trade in as it took EUR/USD back above 1.42 and stopping me out.

Total: -60 pips/ -1.0% loss

So, EUR/USD continues to be tricky to trade as sentiment shifts as the events around the globe and the European sovereign debt issues continue to unfold. But that’s what makes the FX market great for trading–lots of volatility! I just gotta do a better job of staying on top and flowing with the events as they change.

Well, there’s still one more day to end the week positive, so I’ll keep my eyes out for another valid trade setup. Stay tuned and if I don’t hit ya with a new idea soon, have a great weekend and I’ll see ya next week!

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Trade Idea: 2011-03-24 2:05 ET

Good morning FX fanatics! It looks like we’ve got short term weakness in EUR/USD after a series of not-so-favorable news reports. Imma see if I can jump into that trend if there’s a retracement. Check it out!

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A couple of news reports from Europe are sparking risk aversion moves for EUR/USD today. First, Moody’s Investors Service is reportedly set to cut the credit ratings of Spanish Bonds. Second, Portugal’s parliament has rejected a deficit-cutting plan. Both events sparked broad euro selling, sending investors back to the safety of US assets.

Technically, we can see that the pair is in a downtrend this week, and looking at the chart, if we see a retracement during today’s trading session, we can pinpoint potential resistance areas.

First, the market temporarily consolidated yesterday between 1.4100 and 1.4150. If the pair retraced higher, I would say EUR/USD bears would start throwing in sell orders around the bottom of that blue area around 1.4125.

Second, the top DATR for the day is around the minor psychological area of 1.4150, making this area a nice and juicy area for me to jump in if there is no change to risk sentiment and we see a retracement.

I can see a divergence signal forming at the moment, telling me the current trend lower may be losing steam.

Today, we have several catalysts for movement on the Forex calendar. First is a cornucopia of PMI data from the EU, starting around 4:00 am ET, and then Initial claims and durable goods data from the US at 8:30 am ET.

All data points are forecasted to come in weaker than expected, and if it does, it could help my argument to short EUR/USD as it may push risk aversion sentiment higher.

So, if there is a retracement higher and no risk sentiment changing news, I’ll short around the top DATR, my stop will be half of the daily ATR (120 pips) since this is a day trade, and my target will be the bottom DATR/WATR (around 1.4040). If triggered, I’ll have an order to add to my position at the PDL.

Short EUR/USD at 1.4150, stop at 1.4210, pt at 1.4040. Short second position at 1.4100, stop at 1.4150, pt at 1.4040.

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

With this trade setup, my max risk is 1% and my max reward is 2.83%. Let’s see what happens!

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