In the much-anticipated event of the day, the European Central Bank conducted second round of its three-year refinancing operation. Today’s LTRO was well received, with banks borrowing EUR529 billion. The higher amount of loans in the second round meant that bank participation exceeded December’s facility by about EUR 50 billion. While this was comparable to most analyst expectations, it confounded the more wild estimations, which predicted that as much as EUR1 trillion might be taken up by the European banking system. There were 800 banks involved as opposed to 500 in December. This was more in line with the Major Refinancing Operation, a one-year facility in June 2009 in which around 1,100 banks participated.

No surprise meant no big moves. The immediate impact was limited, with small rally in Euro and other currencies. Things did change during Ben Bernanke’s Q and A and Capitol Hill. Probably the most important part, or at least the one that moved currencies, involved more easing. FED Chief said that current policies were highly accommodative, so no new easing steps are expected in the near future. This proved to be good for the Dollar, which gained broadly, in some cases as much as 100 pips in short order.

I did not pay real attention to Mr. Bernanke, as his speeches had little impact recently. However, the markets froze of sorts before that, with bullish breakouts not really going anywhere, so I decided to short the EUR-USD in one of my secondary Forex accounts. Entry was at 1.3465, with a loose objective of 40-50 pips. After seeing how currencies behaved, I decided to sit on it for a little longer. About an hour later, I closed it for 99 pips gain. Unorthodox trade for me, but it worked, although the size was too small…

The AUD-NZD is trying to reverse. It is a slow process, following the long downtrend in this pair. On the 4H chart, the price made several attempts, but failed every time. Now this chart shows a minor top at 1.2856, which could be a good entry if the reversal indeed happens. I have buy order at 1.2865 in case the AUD-NZD makes a run here. There are couple of possible objectives here, with the lower one more likely to be reached. It is about 65 pips above the entry.

Mike K.