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March 18th, 2013 at 3:03 pm

Volatility Returns to Forex.

After couple of relatively quiet weeks, currencies started Monday with explosive moves. The Euro plummeted across the board, with huge gaps at the open. In case of the EUR-USD, it was about 170 pips, while the EUR-JPY slipped almost 300 pips, the largest gap in a long time. As a matter of fact, all of the JPY crosses gapped strongly lower, as if the Japanese Yen once again tried to regain its status of the “safe haven”. It is a curious title, considering that Japan has the world’s second largest debt, but no complaints on my part, since I have been shorting these instruments for some time.

With the daylight savings time in the USA, American Forex brokers opened one hour earlier than others, at least the ones I am using. This will change soon when other courtiers switch to DST (next week, I think). Meanwhile, this jump-start created early trading opportunities, in the few currency pairs that attempted to close the gaps immediately and not all of them did. The problem now is that due to different opening times these gaps vary from platform to platform, which makes them difficult to trade with conviction.

The AUD-JPY dropped to 97.40 or so on the American based trading platform, while others show a low at 79.95 about an hour later. I decided to try to catch the rebound here, with immediate entry at 97.62. As always, it was not my intention to entirely close the gap, but rather capture a good chunk of it. In this case, it was a quick 86 pips, still leaving some room to the upside. Good trade.

More important to me was a trade in the NZD-JPY, struggling to catch traction for a week. It almost was stopped out in its early stages, but eventually turned positive. The explosive opening hit my target (slightly adjusted) for a profit 115 pips. Here also the opening low at 77.42 is different from other platforms. For the record, I am still looking only for shorts in the Yen pairs, probably for several more weeks. In my humble opinion, these instruments have much lower to go.

Another trade languishing on my books was the short in the EUR-CAD. In play for two weeks, it was going nowhere until early Monday, when the sudden weakness in the Euro pushed it in my direction. I was happy to get out with a gain of 130 pips. It would be nice if this kind of volatility stayed in currencies, but as we know, waiting is a big part of this game.

Mike K.

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