ForexSpirit

The main focal points on the economic calendar this week were the interest rate decisions from the Reserve Bank of Australia, the Bank of England and the European Central Bank. The RBA was the only one to make a rate change bumping it up the expected 25 basis points to 6.75%. The other two central banks meanwhile met the market’s expectations and kept rates unchanged.

I traded lightly in EUR-USD this week as I anticipated that the ‘keep rates on hold but with a hawkish tone’ from the ECB would result in a sell-the-fact scenario on Thursday. In the end there was no real dip of any significance and the euro has been hanging around the 1.4700 handle for the second half of this week. I don’t think we’re going to see a correction of any import on the euro’s drive to 1.50. I tend to concur with some of the forex commentators out there that we could be in the over-exuberance phase of this trend. We could see one final overextended move higher before things become very choppy and the sentiment changes to be more dollar positive.

I had two Q4 EUR-USD trades during the week, one winner and one loser which effectively just cancelled each other out (although the loser was slightly larger).

Risk aversion was the belle of the ball this week once again, as financial institutions the world over decided to air some more of their dirty laundry brought on by problems in the housing and lending markets.

The Japanese Yen was the big winner from all of this, and USD-JPY has come down from just under the 115 level to the 110 area today. I closed out positions I had been holding from last week on Wednesday when price reached 112.30. Yesterday I put on a small Q4 trade which was closed out overnight for 50 pips profit.

This morning I have decided to move my USD-JPY grid down half-way. This means that my new grid is from 109 to 115. With this new grid in place I placed a Q3 entry at 111.25 this morning.

I also moved up my AUD-USD grid this week. It now sits from 0.90 to 0.96. Prior to the RBA interest rate announcement I placed a Q2 trade at 0.9266, followed by a Q3 entry the next day at 0.9372. The Q3 trade was a pure bread and butter one, which was closed out at 0.9399. My luck was obviously in as this was the high of the week. My Q2 trade hit a trailing stop loss I had placed at 0.9330 as the AUD-USD got impacted by the unwinding of the carry trades.

I was back in with another Q2 trade on Thursday when I entered long at 1.9300. Since then the Aussie dollar has been hit the hardest by the continued unwinding of the carry trade, which is resulting in some impressive gains for the Japanese yen and Swiss franc.

I would like to see a dip to around 0.91 on AUD-USD before placing another long position. Similarly, I would like to see euro drop to 1.46 before considering going long. In both cases I will wait to see if the dip is bought before jumping in. For me, the long term trend is still up for both these currency pairs.

It is also probably worthwhile mentioning that I made a slight adjustment to my money management this week. Since I have added AUD-USD to my trading roster I felt that I should probably scale back on the gearing used for the most recent currency pairs that I have started to actively trade. For both USD-JPY and AUD-USD I am returning to my previous gearing usage levels. This effectively means that my gearing used for entries in Q1 to Q4 will be back to: 4:1, 3:1, 2:1 and 1:1. I am leaving my gearing usage on EUR-USD as it currently stands, due to the fact that I have much more active experience with this pair.