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Trade Closed: 2011-7-07 2:31

EUR/USD 1-hour Chart

Thanks to the combination of risk aversion, the Portugal debt downgrade, and China’s rate hike, EUR/USD experienced a massive fall yesterday. I had initially shorted at 1.4450, but since the move was so strong, it made a lot of sense to add to my position (while moving my stop loss to keep my risk the same of course) at the break of 1.4400.

It took a couple of hours for my second position but price did eventually hit my profit target at 1.4300. Yay me!

First position (short from 1.4448): +148 pips / + 1.06%
Second position (short from 1.4380): +80 pips / +0.57%
Total Gain: +228 pips / 1.63%

Normally, I’d call it a week, especially with the ECB rate decision later and the NFP report tomorrow… but given how weak the euro has been, there could be one more be trade idea out there for me. I’ll continue to keep a close eye on price action, I don’t want to miss the next big move. I’ll keep ya guys posted!

Trade Idea: 2011-7-06 2:51

Good evening (or morning if you live in the East Coast like me) traders! Today, I’ve got a hot setup on EUR/USD! Check it out!

Fundamentally, I am bearish on the pair due to the overall level of risk aversion. Just a couple of hours ago, EUR/USD dropped like a rock on the news that Portugal’s credit rating was downgraded to “junk” status by Moody’s.

The non-farm payrolls report is also predicted to show an improvement from the previous week. From my research, I found out that the dollar reacts POSITIVELY to good employment data. This means that better-than-expected results cause EUR/USD to fall, while worse-than-expected figures lead to a sell-off.

What I am really wary about is the upcoming European Central Bank (ECB) interest rate decision. There is a possibility of a rate hike, which could lead to a EUR/USD rally. If that happens, I’ll be sure to watch price action closely to possibly close my position early.

Looking at the technical aspect of this trade, we see that the pair has pulled back to the 38.2% Fibonacci retracement level and a shooting star and a doji have materialized on the 1-hour timeframe. According to my candlestick cheat sheet, these two candles are usually taken as reversal signals.

EUR/USD 1-hour Chart

At first I was hesitant to pull the trigger because Stochastic still wasn’t in the overbought territory which could mean that perhaps the pair still has room to move higher. So I just placed a sell order at 1.4490 with my stop at 1.4520.

However, when I saw that the dollar index (more commonly referred to as the USDX) also formed a doji on the daily frame that was followed by a bullish candle, I decided to go ahead and sell EUR/USD right on the spot (1.4448). Check out the chart below!

U.S. Dollar Index Daily Chart

I know that USDX reflects the dollar’s strength and shares an inverse relationship with EUR/USD from the U.S. Dollar Index section of the School of Pipsology. The reversal signal was enough reason for me to take the risk of jumping in at market.

Here’s how I plan to earn some shopping money (not really, all my winnings go to increasing my trading capital!) with this trade:

I sold EUR/USD at market (1.4448) and I have another sell order at 1.4490. I risked 0.5% on EACH position. My stop for both positions is above the 1.4500 major psychological handle at 1.4520. I didn’t enter any profit target yet because I’m planning to add as I go.

I’ve been getting a lot of tweets from some of you that are also bearish on the pair. I would appreciate it if you let me know how you plan to make some dough on EUR/USD. So hit me up on Twitter (@Loonieadventure), Facebook, or write your thoughts in the comment box below!

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.