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It’s been a great first month of trading with the net results of +706 pips with a 4/6 (66%) win ratio. You can browse the January archives to find analysis of past the trades.
I think I will continue playing around with my two methods of trading as so far the Demark Trend Line technique has given a bigger risk/reward ratio however with a lower loss ratio than of the HectorTrader 3 SMA technique. However the 3 SMA technique is much more conservative and precise but trading opportunities are quite rare.
The current EUR/GBP trade looks promising too and is currently up +18 pips and since this is a slow moving pair, it’ll be a while until profit targets are met. I’ll add the total to the February pip count since it may be a while until it materializes.
As expected, the Federal Reserve cut interest rates by 50 bp as expected by most analyst and futures traders. Seems like the market enjoyed the news with the EUR/USD and many USD-based crosses skyrocketing close to 100 pips upon the news release.
According to GlobeInvestor.com, “the cumulative 1.25 percentage point reduction in the benchmark overnight rate in less than two weeks ranks among the most abrupt rate-cutting sprees in the modern history of the U.S. central bank.” Let the continued down trend continue throughout the next couple of months which will surely no doubt add fuel to the Euro’s rise above the psychological 1.5000 mark.
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In trading news, my EUR/GBP pair finally materialized and broke out of its flag formation on the daily charts and i’ll be aiming for the prior high near the 0.7600 region and the full projection around 0.7800. Here is the daily chart and ignore the abundance of trend lines as I got quite bored waiting for this setup to arrive, although I must admit, it does look beautiful.
As currency traders get set for the FOMC meeting announcement at 2:15 EST Wednesday afternoon the only question on everyone’s mind is will the Fed cut 25bp or 50bp this time?
The futures markets are assigning an 86% probability of a 50bp cut however a large majority are betting that the Feds will only cut by a measly 25bp. If the 50bp cut does happen, prepare for major downward pressure being forced on the U.S. Dollar due to the decline in interest rate differentials which may trigger the rise of the EUR/USD to the pivotal 1.500 levels. Furthermore if the latter were to occur with a 25bp cut, short term volatility in the equity market would escalate dramatically yet such actions would allow US policy makers more flexibility to lower rates in the future.
On the trading front, not much is going on and many pairs are off their Average Daily Ranges considerably due to pending announcements in the U.S. which will then set the tone for future trends to occur. Given that I just watched Rambo, I feel pumped for a trade as it has been a while.
As per my last post, EUR/GBP is still ranging within its downward flag formation and any break above the 0.7450 would signal at outbreak with the 0.7400 region providing a great area for support if it were to occur. Here is a quick graph of the triangle formation on the 4 hr time frame:
Another potential setup may lie in the GBP-NZD Daily time frame and given the relative strength of the New Zealand Dollar, another down swing may be inevitably be triggered when the 2.5450 region has been breached.
Lots of news is coming out of the U.S. this week with the big anticipated interest rate statement on Wednesday and Non-Farm Payrolls on Friday. I don’t expect to be trading any U.S. pairs this week as there will be extreme volatility that can go either way. According to Bloomberg, analysts are calling for only a 25bp rate cut but the futures market is pricing in a greater chance of a 50bp cut.
According to PFXGlobal’s Total Fundamental Strength Analysis for the week, it suggests that the AUD and NZD will be the strongest pairs this week with the Yen and Franc again remaining the weakest.
On the COT report charts, EUR/USD and AUD/USD both crossed to the downside which signals a potential downtrend for the week.
I stumbled upon a neat article on DailyFX regarding a New Zealand Dollar’s potential break off its 10-year support line against the Euro and predicts a swing to the upside with potential 3,000+ pip increase once the triangle formation breaks out of its pattern.
I have currently been swinging back and forth between two trading methods: The Demark Trend Lines and the HectorTrader 3 SMA methods. My dear friend, Autopips, is having great success with the the Demark Trend Lines method and I will keeping a close eye on his findings as it provides huge returns albeit with more risky. He has netted 3,216 pips in December alone!
With the 3 SMA method, the EUR/GBP may be ready for its next move up on the Daily charts which can potentially result in an easy 150+ pips to the previous swing high once the downward triangle breaks and as we all know, the pip value on this pair is twice those of USD crosses.
Another profitable trade today on my new favourite pair, the British Yen, with volatility sky rocketing today despite minor news announcements that the Bank of England is holding rates unchanged while GDP on a month-to-month basis increases slightly.
VIX volatility indicator has increased heavily today to the 30 points region which favours the Yen and Swiss safe pair as there is too much indecision going on with USD based pairs especially with the surprise rate cut yesterday.
I had USD/JPY and CAD/JPY on the lookout as well however GBP/JPY presented the best opportunity due its huge Average Daily Range. All three Yen based pairs exhibited the same pattern last night and would have resulted in a profit nonetheless.
A trade on the 4 hour time frame was taken in which the pair was trading near its 50 day SMA resistance area which provided for a huge momentum downtrend after the breakout, pullback, continuation confirmed the move to the bottom. The trigger chart on the 1 hour time frame gave the picture of a classic Head and Shoulders pattern which provided additional support to the downside.
Bernanke and the Federal Reserve responds to the current market cries with an emergency 75bp rate cut to temporarily stop the bleeding sustained in the equities markets around the world . This has limited the downturn on the Dow Jones for the time being with its peak drop today of -300 points. With no hesitation, the Bank of Canada followed suit by cutting interest rates by 25bp to further ease the huge draw downs occurring on the TSX stock index.
According to DailyFX’s Kathy Lien, the market “still expects another 25 to 50bp on January 30th because 75bp is just not enough. It failed to push Dow futures back into positive territory – we may only get a dead cat bounce in stocks which necessitates further easing.”
The Fed’s primary concern was increasing downside risks to growth, a deepening of the housing contraction and softening labor markets. The announcement has driven the US dollar lower against every major currency with the exception of the Japanese Yen. Significant rebounds have been seen in all of the carry trades. Further easing equals further dollar weakness.
Meanwhile a report put by PFXGlobal suggests a rate increase by the Reserve Bank of Australia due to rising inflation coming from Chinese demand for mineral resources. Keep a close eye on this week’s Australian Consumer Price Index (CPI) announcement. If it is high, watch for the AUD to gain strength.
No trading today due to the copious amounts of news flows coming out from the U.S. however the trend is still down wards on U.S. based pairs.
Well the results are in from last Friday’s trade which was taken on the 4 hour chart and has reached the target profit at the previous swing low at 207.05. Total profit for this trade is +324 pips which isn’t too shabby. It’s too bad I only entered with one lot instead of the usual two in which the other half would have been riding free. Given the weak British pound and the shaky markets still feeling the affects of the sub prime fallout, a good bet would be on the Yen still. Another rambling, here is the chart:
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