The Fed surprised the markets today by indicating there will be no more rate hikes in 2019 (previously an expectation of two hikes) and that their balance sheet reduction program will in end in September. The dollar spiked lower on the news, an understandable reaction given the dovishness of the Fed, and with the expectation that this pressure on the Greenback is likely to linger short-term as traders around the world adjust to this new information, I decided to close my USD long positions for now in EUR/USD and EUR/USD
Support Break on EUR/USD
I first shorted EUR/USD manually at 1.1303 with a nibbler position back at the end of January on my fundamental bias in favor of the Greenback over the euro, and as it broke a rising ‘lows’ pattern on the daily chart. Then I got a chance to add another position at 1.1400 after pair rallied in February, which quickly brought in more sellers into a strong move lower to test 1.1200 in March after the ECB went pretty dovish on the European economy and introduced new bank stimulus.
But since then, EUR/USD has gone into bull mode mainly on a weak U.S. dollar as the latest U.S. economic updates disappointed in recent weeks, prompting traders to price in a potentially dovish Fed meeting. And as explained above, that’s exactly what we got today, which prompted spike higher in EUR/USD to break the pattern of falling ‘highs’ pattern, thus invalidating this trade from a technical analysis point of view. So I decided to close down the full position manually at market (1.1440).
Total: -97 pips avg. / -0.25% on 0.50% max risk
So a small scratch to the account, but I definitely could have done a better job of managing this trade. At it’s peak this trade was up 166 pips or +0.44%, but I didn’t trail that move since I was pretty confident that the monetary policy divergence would carry it lower. My mistake was not to do another stop roll down to lock in the profit, so I’m gonna say this was a pretty bad trade given that I gave a profit back and then some.
I’m still bearish on this pair, but with the Fed surprising the market, I think USD will be in for a rough patch in the short-term. I’ll look for another short opportunity around the 1.1500 – 1.1600 on short reversal patterns and if the story still makes sense within the next month or two.
AUD/USD Long-Term Downtrend
I shorted AUD/USD at the beginning of the year on my fundamental bias against the Aussie (housing market concerns and Asia region economic slowdown), and in favor of the Greenback that at the time was looking forward to two more hikes this year and would likely benefit from any global economic slowdown because of its ‘safe haven’ status.
The scenario has generally played out the way I saw it back in January, but the move in AUD/USD was a slow grind lower, and because of concerns with the latest U.S. employment report, I decided to cut my position in half at the major support area (0.7022) to lock in a profit in case it was disappointing (and it was very much a disappointment).
Today’s drop in the dollar doesn’t invalidate the technical analysis argument of this trade, but I am pretty confident Greenback sellers will take control from here short-term. Plus, there’s an upcoming Australian jobs report that could surprise above expectations based on leading indicators and the recent trend of positive surprises, so I decide to close my remaining position down as well manually (0.7149) in hopes of jumping in again down the road at a better price.
Total: +51 pips / +0.27% gain on 0.50% risk
Again, I’m very bearish on this pair still, so I’ll be watching for the pop higher to run out of steam over the next week or so before doing another analysis and to see if a short play still makes sense.
Stay tuned for that potential idea and as always, good luck and good trading!
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