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No Trade: 2012-01-11 18:03 ET

Good evening! Thanks to Fitch and weak European data, it was big moves for EUR/USD today, but unfortunately my entry orders were missed by like two pips! Check it out…

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

PCDPOD20120109.review.png

As I mentioned above, we saw Germany’s economy by 0.25% in Q4, but the kicker for the big move apparently was Fitch’s announcement that the European debt crisis will spread. The sell off pushed the pair back down to this week’s lows around 1.2665.

As we can see on the chart, I was able to participate in this down move as the pair narrowly missed my first short entry order at the 38% by just a few pips…doh! We also saw a nice reversal signal on the 1hr chart in the form of a doji and divergence with the stochastics indicator. Needless to say, with the pair testing this week’s lows, and the ECB interest rate decision coming up tomorrow, I have decided to close my open orders to avoid event risk. No trade.

Overall, a great setup, but the market didn’t play out to my favor. In the future, I could adjust my process by going in at market once I see a nice reversal signal, like the doji and divergence, so I’ll be sure to remember that for next time.

Well, that’s it for me today. I’ll most likely be in reaction mode with the big events coming up on Thursday’s session. If an idea does spark up in my head, I’ll be sure to post it on Twitter and Facebook to see what you think. Stay tuned!

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Trade Idea: 2012-01-09 16:06 ET

Good afternoon forex friends! After an extended break from the markets, It feels good to jump back into the swing of things. It looks like I missed the strong selloff in EUR/USD at the start of 2012, but that doesn’t mean there’s still a chance to go with the trend, right? Will there be a pullback for euro bears?

PCDPOD20120109.png

On the 60m chart above, we can see my usual favorite setup of trying to jump into a trend on a pullback. I’ve thrown up the Fibonacci tool to help me spot a potential resistance area, and we can see that the usual area to watch (between the 38% Fib and 61% Fib) is between 1.2820 to 1.2915. This area lines up between the last couple of consolidation areas in the downtrend, so traders may view it as potential support-turned-resistance areas.

Fundamentally, the euro is still between rock and a hard place as the massive sovereign debt is still present, austerity looks to slow down growth, and there is the idea that new ECB President Mario Draghi is open to interest rate cuts. We do have the ECB meeting this week and it looks like the market is not expecting a rate cut this time. But if they do cut, it should work out nicely for my trade.

Last Friday, we got positive job numbers in the US in the form of +200K net jobs added (versus +155k forecast) and a dip in the unemployment rate to 8.5%. While I always remain skeptical of the BLS’s numbers, it did seem to have a positive effect for the Greenback. Also, given that the huge risk event everyone is watching out for is a European sovereign debt default, I think sentiment still favors the US Dollar in the short term.

So, with that line of thinking here’s what I look to do this week:

Short half position EUR/USD at 1.2820, stop at 1.2985, pt at 1.2640

Short half position EUR/USD at 1.2920, stop at 1.2985, pt at 1.2640

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

This trade structure gives me approximately a potential 2:1 return-on-risk if both positions are triggered; possibly more if the trend is strong and I decide to ride it further.

As always, if the market environment shifts on a new catalyst, I’ll be sure to adjust my open orders or open position quickly. Be sure to follow me on Twitter and Facebook for updates. Thanks for checking out my blog…good luck and good trading!

This content is strictly for informational purposes only and does not constitute as investment advice. Trading any financial market involves risk. Please read our Risk Disclosure to make sure you understand the risks involved.