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.

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.