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The FOMC cut rates by 50 basis points yesterday, which was enough to push EUR/USD further up to my entry orders at 1.3000. Unfortunately, it pushed it up way more than that as the rally took the pair as high as 1.33 during the Asian session before seller jumped in to take control during the European trading session.

My trade was entered but quickly taken out for a stop by huge momentum to the upside.

Total: -100 pips/ -1.0% loss

So, is it back to the downside for EUR/USD? Well it looks like the “support-turned-resistance level” around 1.3260 was a better spot to jump in and traders have taken the pair back down to its current levels, just above 1.3000. If this swing lower continues, look for a retest of the previous lows around 1.23 to 1.25. Stay tuned!

Trade Idea: 2008-10-28 17:00

Hello Mates! Another wildly volatile day, but in a good way for risk-takers, as risk tolerance grew on speculation the BOJ will cut rates. This translated into Japanese Yen selling and carry trade buying (i.e. purchasing higher-yielding currencies) or profit-taking on carry trade selling. This pushed the Euro higher today, so the question now is, “Will the momentum continue higher?”

Today’s price action could be the start of a rally higher to correct the extreme sell-off in this market. We’ve witnessed moves never before seen, and probably we’ll never see again in our trading career. Such extremes tend to lead to an exhaustion as the market runs out of buyers/sellers, especially when everybody and their mama becomes too scared or greedy.

Are we at that point? I don’t know, but it is starting to feel like it to me. At the high point, USD has gained around 23% against the Euro in the last month… that is NUTS!!!! We’ve possibly come to that point, but not before we see some price action confirmation (consolidation and reversal).

An argument that we may head into consolidation phase is the recent bank interventions in the currency markets. The Reserve Bank of Australia and the Bank of Japan have stepped in, buying and selling their currencies to slow the rapid shift in exchange rates.

Couple this with the speculation of rate cuts from the BOJ and the FOMC, we may see at least a temporary end to the rapid decline of risk and a move into a breathing period.

If we are at the point of consolidation, I think the area between 1.25 and 1.30 (as highlighted on the chart) for EUR/USD will be the battle field between the bulls and bears. That’s what I look to play now.

For the most part, I will be shorting around the top of the area as it coincides with the general trend and maybe lower-sized positions long at the bottom of the area. If there is a breakout in either direction, I will readjust my trading plans then. For now, here’s what I’m going to do:

Short EUR/USD at 1.3000, stop at 1.3100, pt1 at 1.2900, pt2 at 1.2500

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

So, that’s what I think we may see, and I could be completely wrong, which is why I love money management – Learn it, live it, love it! Haha! Stay tuned!

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