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Wowzers! Looks like I underestimated that US Dollar sell-off as the Greenback got beat like it stole something this morning! EUR/USD moved well beyond its daily range (around 260 pips) to rally up as high as 1.44 from 1.40 at the end of US trading yesterday.

Needless to say that my short position triggered at 1.41 was stopped out at 1.4350.

Total: -250 pips/ -1.0% loss

It’s days like this that reminds my why money management is so important. The market is always going to surprise or prove me wrong ever so often. I could have taken a bath in this one, but because I picked a point where I thought my trade idea no longer became valid, set my position size accordingly, I cut my trade and limited my loss to only 1.0% of my account. No sweat.

So, I’m still bearish on EUR/USD (I guess I’m a contrarian at heart) based on my analysis earlier, and I’m going to continue to watch the pair closely. This morning’s move may be just the Asian and European players getting in on the action since they didn’t get a chance to play after the Fed announcement yesterday.

Stay tuned!

Trade Idea: 2008-12-16 21:28

I took a hit last time I tried to short EUR/USD, so why not try it again? After the beating the US Dollar has taken on the anticipation of today’s FOMC rate cut, I think it’s time for me to buy back some Greenback.

I’m still a US Dollar bull against the Euro for several reasons, but first, let’s look at some reasons for a bearish US Dollar argument. The FOMC just cut the Fed Funds rate down to 0.25% and the Greenback was beaten down on the way to today’s interest rate cut.

The benefits of holding an asset tend to go down as its interest rates go down, and at 0.25% the Greenback does not look attractive at all. The Fed is printing US Dollars like crazy to buy the country’s way out of the credit crisis. And as we all know, the more of something you have out there, the less valuable it becomes.

The economic data isn’t looking too rosy out there as well as we are now hitting 500K jobs lost a month in the US. This trend will probably continue as this crisis continues deeper into mainstreet. This means more people out of work and less willing to spend. Inflation is also down (which means we probably won’t see a rate hike), and housing data is still in the dumpers.

Foreclosure is still rising and the supply of homes far outweighs the demand. So, the US economy is hurting, there’s still a credit freeze, and the Fed is slowly devaluing the currency away.

Looks bleak, eh? So, why would I buy Greenbacks against the Euro?

For the simple reason that all this negativity is happening everywhere and the rest of the world needs to catch up in fixing its own economies! Eurozone is definitely not immune to what’s going on in the credit markets and it won’t be too long until the ECB starts slashing rates more aggressively as well.

My other thought is that the world needs a safe haven, and that is the US Dollar. Even though this all started in the US, the US is still the world reserve currency, and probably still the best bet on some stability. So, a huge chunk of my trade idea is sentiment-based in that I think the Euro will fall to the Greenback as the ECB will probably continue to cut rates and as the world needs some stability.

Technically, EUR/USD rallied around 1000 pips in just a few days ahead of the Fed decision. There may be some profit-taking after a move like that, and possibly a return to the downtrend as the rally may have run out of steam. I also see the pair hitting the 200 EMA on the Daily chart – a possible resistance area. I am going to scale into a short position around the area highlighted on the chart, but here’s what I’m going to do for this blog:

Short EUR/USD at 1.4100, stop at 1.4350, pt1 at 1.3950, pt2 at 1.2500

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

So, as we can see, I’ve got a wide stop of 250 pips (so I’ve had to cut down my usually position size down a bit), but I am ultimately targeting the previous major bottom around 1.2500 which is around 1600 pips away….holla! This is a longer-term trade baby, and I’m going for the gusto. Stay tuned for updates and adjustments. Wish me luck!

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