Last few days must have felt like very eventful in Forex trading.  Volatility increased in relation to previous weeks and a lot of currency crosses experienced large swings. I could be a little skewed in my observation, being mostly focused on Pound and its pairs lately. When GBP moves it, well, moves and gets noticed. But there was much more to it. All commodity currencies were jumpy, AUD, NZD, CAD, and so was Euro. I mean, EUR-NZD had over 500 pips day in the middle of the week.

Let’s not forget Japanese Yen, which responds to all other currencies volatility. JPY crosses had sharp moves in both directions, ranging over 300 pips per day in some pairs, like the beast. While these are good size swings, they must be put in a perspective. I wanted to see  this recent activity compared to what happened in the past, namely a year ago. In October last year Yen was also the star of Forex trading world, only conditions were even more extreme. The post Panic was written day after GBP-JPY plunged 2000 pips in a day and then recovered 1200 pips or so just as fast. That happened during the height of financial crisis. It seems to me, that recent tone of press coverage gets more alarmist and about all financial markets are getting increasingly volatile, resembling last year’s conditions. Only the magnitude of fluctuations is still smaller and I hope it stay like this. Once GBP-JPY starts moving over 500 pips per day, and other markets increase by corresponding ratio, things get a little uncomfortable. It may seem like fun when you are on the right of the move, but it also could be an “Ouch”. Big one at that.

Today, Friday, currencies seem to have taken a breather after the fast pace of earlier days. Frankly, it is just fine with me, since I want to be done early today. This also gives me a chance to over some unfinished business, like the EUR-GBP analysis and trade. It was last discussed at some length in the Next move post, showing a daily chart, dominant time frame for me at this stage. My line of thinking was that market could find support around 0.9000 or just under and bounce, after which I could resume my selling. Well, it didn’t and just kept on moving lower only at much slower pace.

What’s one to do? Risk missing the trade altogether, or settle for much bigger stop than would like to? I went short at 0.8990 with only half the position size that would be approriate. It would be just fine, if the pace of decline kept its original momentum. Unfotunately, it slowed down, increasing chances for corrective move to the upside, something I’d like to see anyways, just…. So I simply closed the trade about an hour ago, taking 48 pips.

Here is how the 4H chart looks like. I’m getting a little confused so it is time to step away, and review it again in couple of days. Surely fresh new plan will emerge by then. Regardless, it has been a very good stretch for me shorting EUR-GBP over last 2 weeks and I don’t think it is over yet. Just a break for now.

Another cross followed here for a while is EUR-NZD. As mentioned before, it had a great day earlier on. This trade is attempting to use only highs/lows to stay in for as long as possible, just like another Pound trade did before. When price moves above the high at point “A”, lowest point between them will become my new stop loss for the trade. Given the fact that 4H chart is used, this process will likely take some time. I’ll keep you posted.

There will be no update tomorrow, I’m going out of town for the weekend, leaving in couple of hours. Given my masochistic sleeping patterns, though, I’ll likely post something Sunday morning before markets open. Unless the mountains make me tired, not so much hiking, as watching them from a nice hotel suite.

Mike K.