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.

EURUSD and other market thoughts

EURUSD had an outstanding Thursday (propelled by comments from Draghi indicating ECB was not about to cut interest rates) and Friday last (due to underwhelming NFP results for America), that saw 3 big figures traded. Personally, I was still kinda shellshocked to do anything about it on Thursday by the BOJ announcement, during which EURUSD lay comatose for hours, and was unable to get a grip on it leading into the whipsaw created by Draghi's speech.

Right now, its Monday and the US session is about to come into full effect. EURUSD is trading around 3020-30. From a technical perspective the bulls have taken control at least in the short term. Having already done so for a number of week BNP Paribas continues to talk up their position, suggesting that

EUR/USD to track peripheral spreads, which themselves suggest the spot should be trading closer to the top end of a 1.30-1.32 range.

Fundamentally, nothing has changed. I think upside is limited given that there is still no real solution to a fragile Eurozone, for example:

• Italian elections;
• Portugal budget woes coming back to the front?
• some building concern over Slovenia
• the Cyprus precedent of railroading depositors...fuckin fatal
• Cyprus to get a 2nd bailout, by year end?

On the other hand, the market think the Fed will NOT scale back QE, and this is supporting the EURUSD. Wow, just as Im typing this, comments from the Fed's Painalto indicate otherwise.

From an intraday perspective, I reckon profit takers will be wanting to get out after Thursday & Friday's efforts...and the price action above the 3000 handle has not been particularly explosive throughout Monday. There is some talk of large 3000 option expiries which should dampen the market for a while. Still hearing plentiful offers above:

RT @orderflowforex: #EURUSD offers @ 3040, 3080 & 3100 - buy stops above 3050 #fx #forex 

@orderflowforex: #EURUSD - An Asian central bank noted seller above 1.30 #fx #forex  

I do have to consider that the positioning must be a bit stretched now. We have had 2 months of decline, and   long term shorts must be at least thinking about taking some profits off the table.

Sentiment studies have noted a climax in S&P, and thinks that the macro environment is changing for the worse, and that the smart money are thinking of getting out of the rally.

Overall, I remain  a seller of Euro at present, and will be looking to build shorts between 3000 and 3100 over the coming sessions, for a move down to 2750 if I'm lucky.

And so, to another day of trading...

Week to date

Big week so far, the whole Eurozone debacle reached a new low point with Greece unable to form government after recent elections due to a collective inability to agree over a national approach to ECB/Germany demands for austerity.

Greece is headed back for the polls (June 17?). In latest developments on Wednesday, the ECB has locked out 4 spanakopita banks which caused some 50p range volatility. I would have expected another 100p drop on this news, but am surprised by the sideways price action. The market has been going down for 11 or 12 days now, perhaps it needs a solid retracement to keep the overall bearish trend healthy.

In terms of trade execution I had a couple of hits and misses. Missed a solid gold chance to sell €/$ on Monday. Pushed too hard on Tuesday by selling too soon in Asia, down -6%. Recovered to +12% by EOD. Stood aside on Wednesday which was good as I didn't feel the need to trade, and there were no signals anyway - it was pretty choppy. Sellers are waiting for better levels to sell at, but there's no big reason for open shorts to bail out of the trade.

Happy NY

Wow, it's been over 6 weeks since my last post?  Gosh I've been lazy-ass bastard...  But in defense it was the holiday season, and I've still yet to get my act together since the great collapse 4-5 months ago.  Ouch, the memory of that still stings... moral of the story don't fucking trade without fucking stops, you FUCKING IDIOT!! Haha...

Lots have happened since, the Euro's now down heaps ... trading around 1.28 from a high (?) around 1.40 only a few months ago.  Key themes are:

• Europe - ongoing debt concerns / structural deficiencies = bearish outlook throughout the next 6 months.  ECB's not overly fussed about the declining of the Euro, points to previous historical low of 0.90.  Fear of contagion is running high, with record amounts (550B?) pushed into ECB's overnight facilities over the late-Dec/NY period.  Greece needing another bailout by March.  In the face of all this rubbish I can't see Germany wanting to hold on for another full year.
• US - about to hit the debt ceiling (again), presidential elections in November, threatening Iran with war (oil's trading around $100 atm).  QE3 is a possibility (March?) which would sending gold and equities soaring = bearish but not at the expense of Euro at this point in time.

I recapitalised my trading account with $2k in November, and still trading small with 0.1 lots.  It stands at $2.9k.

Tonight is the first NFP for 2012.  I'm going to see Grandmaster Flash with the gf instead.

Thurs -21 (or how not to trade)

I dont even know how I got out of this one alive...  ECB Trichet said the words 'strong vigilence' implying interest rate rise (or risk on) but we have those bastard leverage funds selling on this news 10 pips outside the band...  Go Markets froze, and there I was like a royal dipshit thinking the price was doing nothing BOUGHT, and got filled at the very top...suddenly the P&L was telling me I was -38 down? WTF? Thus began a panicked session of corrosive emotional trading, something I haven't really felt over the past 2-3 weeks.  Fucking lucky to come out alive with -21 on the top considering I was looking at -600 or so at one stage.  I will not trade for the rest of this week as punishment.