Interest rate decisions from the two central banks yesterday didn’t produce any surprises. FED has left its benchmark unchanged at 0%-0.25% target, while Reserve Bank of New Zealand stayed with the current 2.5%. Analysts are pouring over the statements looking for subtle hues in language of the news in search of “hawkish” or “dovish” tones. Today’s headlines are attributing run in NZD to just that. Funny, the decision itself produced almost no movement at all in Kiwi. Activity picked up few hours later and was broad based, effecting all currencies, not just NZD.
Meanwhile French President, Nicolas Sarkozy, found new scapegoat for world’s financial troubles. In his eyes floating currency exchange rates are to blame for the problems and is proposing return to Bretton Woods system. This would peg currencies to one another, much like they were in the post war era. Never mind that this system would greatly favor all of the emerging market countries, like the BRIC club. I hope nothing comes of it, but it is disturbing that somebody would even take something like this seriously. Personally I think we should focus more on his domestic problems, where strange things are happening. For example, France is on the verge of passing law making it illegal for muslin women to be veiled in public. Very progressive…
FED caused some volatility, which spilled over to Japanese Yen. Come to think of it, Yen crosses moved more than Dollar pairs with JPY on the defences. This move lasted until London opened. I had to adjust slightly my intended trade in GBP-JPY. Within the first hour from news release order was suspended, as described yesterday. Price poked through the suggested entry of 145.66 and pulled back. Once that happened, buy was reset at 145.75 with the same objective of 147.00
This is how the chart looked like once that hourly candle closed. Shortly after trade was triggered and the beast went on a nice prowl, taking it to 147.00 and meeting my target. That happened right before London opening.
Target was hit just before resistance, for 125 pips gain. All of the Yen pairs had similar moves, some better than others. But not all of them had the kind of price patterns I look for. For example, AUD-JPY had ugly price behavior while EUR-JPY and CAD-JPY showed nice entry points.
Loonie-Yen had breakout at 84.71, for a target of about 85.80. This proved a little over ambitious. When the beast reached 147, it was within minutes of London opening. Since trends very often change or pause at that time, I also closed this trade.
Short of the target, but still 67 easy pips. Price moved a little higher after that , but eventually reversed. One could say even crushed. Sell off is still under way. Getting out when I did proved to be the right decision. Similar trade in EUR-JPY.
All the other orders mentioned earlier this week are still valid, with one exception. EUR-CAD buy at 1.48 was cancelled. Right now price is bouncing up from this level, but certain other prerequisites were not met, so no trade. However, I’m watching this pairs on hourly chart and if reversal forms on hourly chart, I’ll take a long trade then. All those orders will be discussed in more details in next update.
Mike K.
Hi Mike,
For the EURCAD trade, did you cancel it because the run up to 1.51 was not strong enough and as such not yet confirmed your suspicions of a reversal in this cross pair? And are you now watching the 1H chart to determine whether it has the legs to break through 1.5000?
Cheers
Brad
Mike - thanks for the posts. I’m think I’m starting to get a feel for the reversal patterns as shown above.
I’m interested to know where you place your stops. I always want to place my stops to close. On the CAD/JPY trade I assume your stop below the recent lows at about 83.60. On the GBP/JPY trade did you have your stop below the 143.62 low or below the swing low 144.42 prior to entry?
Hi Brad,
Yes, the EUR-CAD I cancelled the trade at 1.4800 because Previous move didn’t go close enough to 1.51. This made the 4H chart look more of a triangle, which I don’t like to trade. Chart looks different now that when I first mentioned it and doesn’t develop the way I expected.
Even 1H chart is questionable right now with 1.49 proving a resistance. I will most likely not touch it on Friday at all. Will see what happens during European session.
Hi Jason.
For GBP-JPY the initial stop was 144.42. Trade had rather limited potential, so couldn’t risk any more. Once it started to move, it looked like was going to get to target. For CAD-JPY I used a mental stop of arbitrary 50 pips. Smaller time frame, 15 M had a minor low there, but in reality, GBP-JPY was the guide. It was way ahead in the move, so any break there would also make me close CAD-JPY and EUR-JPY.
I mentioned before that I’m rather liberal with stops and focus more on general probabilities of the pattern.
There is nothing wrong with having tight stops, but you have to accept from the start that failure ratio will be higher. However, in this case you need to focus on risk/reward ratio more then I do. Also, one needs more discipline to sit on winning trades, trying to maximize gains, in order to compensate for more stopped out trades.