After long debates, EU leadership came up with a plan to “defend” its currency. Idea is to put an end to what authorities described as “relentless attacks on the Eurozone’s weakest nations”. Some blamed the the markets on Eurozone problems, accusing participants of trying to bankrupt Greece, Portugal and perhaps others. New steps agreed to yesterday are supposed to change all that, breath new optimism into markets and resume the recovery process.

As mentioned in last post, this plan is very similar to US TARP program. ECB agreed to start buying Eurozone’s bonds, something they long resisted doing. EU Commission, the EUR countries and IMF pledged close to $1 trillion dollar to a three year plan. Actions are coordinated with most other central banks, which agreed to a temporary dollar swap plan. FED is also playing major role and reopened a program to ship billions of U.S. dollars overseas. All this is intended to calm currencies, and other markets, down. So, now Europe is, essentially,  trying to borrow its way out of trouble, something they criticized US for. How about it?

This should effectively put an end to any talk about “exit strategy” for the previous stimulus packages. Or perhaps exits will be staggered over years, even decades and we (traders) will have hard time to figure which stimulus/bailout analysts and commentators are referring to. It seems that Europe is back to square one on its road to recovery. On a plus side, it is constructive to see EU acting together, something that has been questionable recently. It should give the Union a moral boost. Whether or not it helps the currency, remains to be seen.

It did today. Euro opened strongly, advancing to 1.31 early on in European trading. But it has been falling since, right back to where it started the day. However, announcement boosted all of the currency pairs that had fallen last week, including Japanese Yen and Swiss Franc crosses. Last post covered AUD-JPY and CAD-CHF, so I’ll stay with them now. Especially Aussie-Yen turned out to be active for me.

This pair opened just above previous high of 83.25, on a large gap. First pullback created a small hammer, which I used for long entry at 82.47, targeting 100 pips, just above the new minor top. Price moved fast and transaction was concluded shortly.

At this point I was expecting a pullback. Within an hour, though, I changed my mind and decided to go long again, without price retracing. This is pretty much when a breakout trade would have been entered, too.

Second trade was initiated at 83.63, with the same objective of 100 pips, as the first one. However, things didn’t happen as fast as before. Had to wait for a few hours before target was reached.

I was hoping for one more move up, but it didn’t happen. Price has been moving slowly down for the rest of the day. Regardless, that was a nice sequence of trades, bringing 200 pips relatively fast. The other pair mentioned yesterday, CAD-CHF,  also recovered nicely, all the way back to levels from before the sell off. It seems that correction to today’s moves is inevitable, with a pullback to maybe as low as the open, something to be traded on small time frames, with maybe 40-50 pips targets. Breakouts above today’s high could be buy opportunities IF supported by some news/announcements. Have a feeling that most crosses will consolidate around current levels for one maybe two days.

Mike K.