September Market Update (Week 1)

The euro dropped below $1.30 for the first time since July 2013 after the European Central Bank unexpectedly cut its main refinancing rate to a record 0.05 percent and introduced additional stimulus.

The shared currency fell the most versus the greenback since October after officials lowered the deposit rate to minus 0.2 percent, also the least on record. The euro extended its decline after ECB President Mario Draghi said the central bank will purchase “a broad portfolio” of asset-backed securities starting next month, a policy that will have a “sizable impact” on the institution’s balance sheet.

In other news, the Bank of England and Bank of Canada both kept rates unchanged this week keeping moves relatively muted.

5 Best Trades this week

  1. GBPUSD (Daily Chart) – Power Pivot Trade Short – 02.09.2014 – A delightful continuation trade whereby the price action flagged the opportunity to short the pair just prior to its next leg lower. Monday’s bar was a clear, significant high test reversal bar. This coincided with a small but healthy 50% fib retracement, in line with a soft horizontal level of resistance. All these factors together provided ample evidence to take the trade as a power pivot setup and efficiently enter on the break on Mondays low, with a stop above its high. Entry came on Tuesday as the market thrust lower, hitting +2% at the next horizontal level below.
  2. EURJPY (Daily Chart) – Triple Top Power Pivot Short – 04.09.2014 – The big 138.00 level was proving a strong level of horizontal resistance. Price over the past few months had respected this level both as support and resistance and this week again provided evidence that it was ready to respect it again. The key reversal seller bar on Wednesday (after a huge bullish bar on Tuesday) was a clue that sellers were holding price down at resistance. So trading a break of the lows, with a stop above the key resistance, allowed for an efficient entry and a decent reward to risk back down to support at 136.50. Price, backed up by the Euro news, hit its +2% profit within the same day.
  3. EURAUD (Daily Chart) – Power Pivot Trade Short – 04.09.2014 – This pair has been by far the strongest trending currency pair out of the many options available. Euro weakness paired against Australian dollar strength has led to one directional moves short. This week provided the first real pull back for quite some time and we got quite the reaction. Using the horizontal level of 1.4150 where it respected it back in October/November 2013, price reacted aggressively to it on Wednesday, producing a bearish outside bar. Trading the power pivot produced an entry on the break of the lows on Thursday, with price moving aggressively lower hitting almost +2% with stops moved to break even and the trade left to run.
  4. EURNZD (Daily Chart) – Power Pivot Trade Short – 04.09.2014 – There is quite a theme here, taking advantage of the Euro weakness. It was interesting to see how the setups technically showed up just prior to the news. Even so, without the news to help assist the moves, the setups were all sound technical setups. With this pair, we had reached the top of the bearish channel and price had tried and failed to break the resistance on several occasions. The same scenario occurred on Wednesday, after price had surged higher it then stalled. Price presented us with a delightful high test bar which signalled the market was preparing for a move lower. This was also a key 786% fib retracement and also hidden divergence. Many factor’s all coming together pointing to a move lower. Thursday came and as we now know, price broke lower, triggering entries under Wednesday’s low and pushing strongly lower. As with the EURAUD trade, the market has run past the +1% mark so stops are at break even and the trade is being left to run.
  5. 5.    NZDCAD (5 Min Chart) – Pivot Trade Short – 03.09.2014 – The daily chart was hitting new lows this week, with no technical signs of slowing down or reversing therefore the pivot strategy was adopted to take advantage of some shorter moves on a lower timeframe. Thursday provided a single opportunity but it was worth the wait as it provided a return of a +1.09%.

EFFECT OF THE NEWS LOOKING FORWARD

Well there we go. Finally the ECB letting their actions speak louder than their words. With the recent stream of poor data from the Eurozone, the central bank would have lost a great deal of credibility and no doubt a great deal of sleep had they done nothing.

This news keeps the EUR weak for a considerable time yet and presents traders with some fantastic, high probability trading setups going forward especially against the stronger currencies.

If NFP comes in positive tomorrow, as well as the quality of the earnings, we could see another boost of dollar strength and a further step closer to a potential path of rate hikes for the US dollar. This gives us a focus on trading the EURUSD, and other Euro cross pairs, short for the forthcoming months using your technical tools to allow efficiency into entries. If NFP comes in lower than expected we could see a mild sell off on the dollar but we see this as temporary.