Wednesday, November 13, 2013

Euro fails to stick to the script

On Monday, November 4th, we discussed the possibility of a retrace in the EURUSD in the aftermath of the significant fall in the pair on what was very much a US dollar positive statement from the US Federal Open Market Committee (FOMC) the previous week. We opined that a series of Fibonacci retracement levels might be of assistance to us in determining how far any such retrace might extend.

Then, on Thursday (Nov. 7th.) Signor Draghi, of the European Central Bank (ECB), confounded all expectations by announcing a 25bps drop in the Eurozone base rate. As a result of this our retrace was blown out of the water, although we did have the Silver Trigger routine set to take a short position in the event that the momentum dictated it, as we did not know how far our putative retrace would go. We picked up a nicely profitable trade as a result of this (see Trading ECB generated Euro volatility).

So the Single Currency deviated from the script somewhat. Now, however, we believe our scenario could be back on track. It must, as always, be borne in mind that we cannot tell the future, so our assumption of a retrace could be wrong (The Euro might keep going up after yesterday’s turn or the trade might trigger, as a short, and then price might turn and go up). If that is the case, and the trade goes against us, then we fall back on our risk control and money management techniques. These are built into the Silver Trigger routine and are an indispensable part of the OmiCronFX system.

Because the risk control is in place we can put our assumption about the likely price action behind us - just forget about it until it either comes to fulfillment or is negated - and concentrate on the best way to manage the trade.

The chart above indicates the new situation. We are now looking for our retrace from the lower level as shown by the blue dotted line. All other aspects of the trade are the same as they were on Nov. 4th.

1 comment:

  1. Very low German and French inflation figures will be bad for the Euro