So what went wrong last night?

I went to bed spewing for at least the next 2 hours.  Woke up this morning feeling 70% better, with residue shittyness still there. Why? What went wrong and how to fix this?

Simple answer is that I lacked the confidence (to perform) that comes with proper preparation.

My attention was half focused during the trade (and the whole day leading into it), and I should have put in at least a few hours of proper thinking & research and played out the potential scenarios and my responses to them.

My money management was fine. My trade logic was OK but could have done with more homework. My entry levels were (in retrospect) fine. If I did my homework, I would have had the confidence to increase size when ECB said they were open to further cuts, instead of getting scared out.

Note to self to do some trader psychology reading in Samoa: http://www.traderslog.com/trading-psychology/

Terrible trading through the ECB rate announcement

Well the day started off alright, but ended very badly tonight.

The rate decision was an expected cut, but Euro zoomed up instead (after rising from a recent low of 2960 six trading sessions ago to a high ECB announcement high of 3220.

I sold on the first hesitation in price action, my thinking was that the initial spike was done and logic would reassert itself as traders saw the opportunity to sell the EURUSD at a good price around 3200. This in fact turned out to be a great decision.  But, I failed to capitalise because I got scared out of it as I was getting smashed by the EURJPY trade and I wanted to take risk off in EURUSD around breakeven. As things stand, EURUSD now trades 3070 so I absolutely dropped the ball on this one.

In EURJPY, things went sour when it exploded north after my entry. When it hit -135 pips all I could think about was survival. The market was moving fast, and moving against logic. The incredible reversal came after Draghi announced the ECB would be open to further cuts (implying negative rates)...but by now I've tilted so hard that I was incapable of thinking straight, let alone executing properly.

The below chart shows the carnage.

Trade update

Gotta admit I don't have a very strong handle on the market at the moment. The core short EURUSD position I'm running has been met with very significant headwind over the past 2 weeks. As I understand it, EURUSD has been dominated by cross flows particularly from major yen selling, and bearish news that would normally drive the pair 30, 40, 70 pips have had very little, if any, effect.

When a pair is not acting in an expected manner (i.e. trade lower on a combination of news & data that is clearly EURUSD bearish) despite having the kitchen sink being thrown at it, then this is a clear warning that its very likely to head the other way. My suspicions were later confirmed when the market took EURUSD up to the 3200 handle on Tuesday night.

Admittedly, this was a moment that was starting to get me hot under the collar. From a technical perspective this is where the weekly kijun resides along with a number of confluence factors. Unable to convincingly crack it, the pair reversed in early Europe yesterday, and was given a second wind triggered by ECB's Weidmann who signalled ECB preparedness to adjust interest rates further.

Now, I don't think there is much to be read from the reversal at 3200 (apart from being an attractive place for long term shorts) or that there are any significant long-term implications from Weidmann's comments. What has happened is that a whole bunch of short-term bears have been cleared out by the rush up to 3200, and now bullish breakout traders will be under the pump given that EURUSD currently trades 3050. From an orderflow perspective the bullish stops underneath the range will be getting huge, and now that we are not that far off from them, they are the obvious next target.

Position wise, my average EURUSD entry sits around the 3100 handle. I'm also trapped in a light gold position at $1480 and will forget about it because it looks like staying this way for a very long time.

And so, to another day of trading...

EDIT: I've let go of the short at breakeven during the Friday night session. This trade has had 2 weeks to breath and the most its done is around 70 pips. Think I have to wait for better levels, and when sentiment really turns...  Maybe better to look elsewhere for the time being.

Thursday EURUSD news

Sean at FWXX is thinking USDJPY macro:

Based on present fundamentals and historic levels, EUR/JPY at 140 is too high in my opinion, as indeed is AUD/JPY at 110+, purely on basis of historic levels. On the other hand, from a very long term perspective, seeing USD/JPY back at 110/115 is not a stretch of the imagination at all.

In other words, I think at some stage very soon there will be excellent bearish trading opportunities in EUR/USD or AUD/USD: EUR/JPY at 130 and USD/JPY at 110 would mean EUR/USD back below 120; whilst AUD/JPY at 105 and USD/JPY at 110 would imply AUD/USD trading back near 95 cents. This is what I expect to happen over coming months.

My preferred way to play this strong USD trade is through USD/CHF and I’m hoping to get the timing right to build a long position for a move to 1.10.

EURUSD is basically in a giant shitfight between EZ woes vs QE driven sentiment from USD & JPY.

EURUSD was rejected from the 3110 level last night (a strong confluence level), currently trades 3050-60.

Commerzbank:

CommerzBank $EURUSD Current position: Longs from 1.2908 exited 1.3110 Recommended trade: Sell at market, add 1.3120, 1.3145and place the stop for now at 1.3225. Shorter term (1-3 weeks): Targets the 1.2679/61 zone. Medium term (1-3 months): Targets 1.2400 en route to the 1.2042 2012 low

On fading the EURJPY

Sean on FXWW said:

JPY starting to feel a bit overstretched

Now I’ll be the first to admit that I’ve thought this on many occasions and been wrong but USD/JPY certainly has a slightly tired feel to it. EUR/JPY is also approaching a big number at 130.00 and perhaps that combined with 100.00 in USD/JPY might be enough to encourage some profit taking?

I’m still going to wait until Europe opens and will sell another failure at 99.65 in USD/JPY

My question is: what is the incentive to keep buying at the current level? Then again, I ask myself that at 1.2250 and look what happened next.

We’ve travelled 10 big figures in 3 days, something that normally requires 3 months. So foreseeably top pickers and profit takers in action now, which (I think) should lead to a slow grind down or at least consolidation in the interim? Clearly, every healthy trend needs some form of retracement – the tricky bit is timing and level…

I’m not game enough to fade JPY yet, mainly because I don't have a feel for the yen - never really traded it much. Having said that, I think I’d rather wait for support to build for the next leg up.

UBS:

Any setback in EURJPY will be limited in time and extent, so look to get long on a correction to 125.15, targeting 132.00 with a stop at 122.50.

Thursday update: All about the BOJ

Had been building EURUSD shorts since the start of the week (post Easter break) banking on continuing bearish sentiment over Eurozone difficulties. At the time of writing, the EURUSD is now starting to sell off on dovish comments from Draghi regarding the EZ, particularly:

• extended weak economic activity;
• growth subject to downside risk;
• risk of inflation;
• lack of banking capital and lack of action on structural reforms.
• See here and here.

Wow what a fucking party pooper that man. Anyway, I was building shorts in anticipation of further bearish moves but the playbook went out the window when I got out due to (what I thought were strong bullish) headlines related to Cyprus getting the bailout cheque. The chart below shows what happened.

Around the same time I flipped long, I went long EURJPY. Now in retrospect that first entry was not really a smart one because I was simply trying a correlation move without much further justification. I was eventually punished as the market moved 100 pips against me. Fortunately it stablized  in Asia as the market await for BOJ news. Forexlive and FXWW kept me up to date, announcement was expected around 0330GMT (around mid afternoon Melbourne time).

The chart below shows what eventually happened.  But what is not clear is the sudden 40 pip selloff by trigger happy EURJPY bears around 0320GMT? I was shitting myself at that point because I was already 30-40 pips down from my averaged entry. I wont lie, I felt rising panic to close off the trade early, but I held because I was (a) desperate and (b) unconvinced by that move because of:

1. how broadly the EURJPY was supported evident in the basing price action over NY & Asia, and
2. how quickly the market immediately bought up the currency back to median levels...I estimate probably over the next 5-10 minutes.