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Stopped Out: 2010-11-19 2:35 pm ET

Soon after I posted my trade idea, news came out that the books from Ireland banks would be examined to see whether or not they can handle the debt load. This bit of news seemed to have calmed the markets down enough to spark an unwind of USD positions and a EUR/USD rally.

Also, Ireland decided to give in and take bailout cash, further sparking bullish euro sentiment as well.

This lead to a rally as high as 1.3730, hitting my stop at 1.3720 along the way.

Total: -170 pips; -1.0% loss

What gets me about this trade is that it took so little to get traders bullish on risk again. After all, there was nothing that suggested Irish banks needs less bailout money than estimated (actually they need 3 times more than they thought back in June), nor was there any news that made me think that the rest of the PIIGS where anywhere near out of the woods yet.

There are too many countries in the EU that need more bailout money and continued austerity measures will probably slow growth down their growth as well. But I guess the fact Ireland will take bailout money and hold of contagion for a little while longer is good enough?! Hmmm, maybe I’m just too negative on the situation and gotta lighten up right?

I guess my mistake this trade was not being flexible enough on my fundamental bias to switch when price action broke the potential resistance areas. I could have limited my loss to probably 0.10%, but then again I thought I gave the trade enough room for fundies to play out.

It’s a tough market out there for those trying to catch a trend longer than a day. You really gotta stay on your toes and be mentally nimble enough to change direction as every day can come out with another sentiment changer. Definitely going to review and ponder my starts this weekend.

So, until I see you next week, have a great weekend, and thanks for checking out my blog!

Trade Idea: 2010-11-17 1:14 pm ET

Good afternoon fearless FX fighters! Sovereign debt concerns in the Eurozone have re-sparked a downtrend in EUR/USD. Can the EU resolve its debt issues and how long will the trend be our friend?

Focus has returned to the EU debt crisis as Ireland is in talks about a bailout and is concerned about unsustainable Greek debt. This of course brings on more concerns about the fiscal and monetary health of other suspect countries with debt issues like Portugal, Spain, and Italy.

Looks like this mess has the potential to snowball out of control–possibly with Ireland defaulting on its debt–which could spark another recession in the Eurozone.

The chance of this outcome grows as the EU/ECB are at a standoff with Irish political leaders arguing that Ireland can handle their debt. Can’t we all just get along? This situation will probably remain the main theme and focus for EUR/USD traders in the short term.

As the focus has switched to the problems in the EU, EUR/USD has trended lower at a nice steady pace. After two days of dropping lower, we got a pop higher today and the pair is testing the fallen trendline and Fibonacci retracement area drawn on the chart.

The stochastic indicator is showing overbought conditions, and we can see hidden bearish divergence, indicating that the pair’s short-term rally has run out of steam.

I have decided to short in the Fibonacci area, around the 50% Fib level, and my stop will be the average daily range of 170 pips. It looks like there are no potential support areas in my way until a minor support area around 1.3300, so I will target and reassess the market if the market gets there.

Short EUR/USD at 1.3550, stop at 1.3720, pt at 1.3300

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

So, the Euro debt story is something to watch closely, and we have the US initial claims and Philadelphia Fed survey on the Forex calendar to spark some volatility in the pair at the end of the week. Stay tuned and good luck!

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