Forex news trading: BOA rate decision

Fundamental events always cause a lot of volatility in foreign exchange markets. Interest rate decision events are above the rest as they are key currency drivers both short and long term. Markets often stall and fall into ranges days before these key releases and right after they come out huge moves start. Be aware of that. Of course, general public might be wrong regarding interpretations of these pieces of news, so it is crucial to follow smart money and not be led by emotions of greed and fear. Anyway, if you know how to take advantage of the news trading you can make nice cash in the long term. Let us look at how you could have traded BOA (Bank of Australia) rate decision today and try to speculate whether it will have long term impact or not. 

Since I have moderated my trading news method slightly I did not trade the event. I did expect Australian dollar to rise after the release, but the Central Bank of Australia decided to surprise traders by cutting interest rates. Technically, yes you could see strong demand for British Pound, Euro and other currencies and strong supply of aussie all along. I guess that was the sign for technical traders that smart money knew what the BOA is up to and were buying into the event.

Although, I did not trade the event I want to quickly show you how you could have taken a trade (or trades) in gbp/aud and eur/aud made nice profits. I like these aussie crosses most as they are the most volatile and travel biggest distances when the breaks happen and big moves start. So, let us see how you could have taken a breakout trade in these two pairs.

First, eur/aud. Just before the news the pair was fluctuating in a small range of 1.2744-1.2777. This gave us an area for entry and exit. For a buy you would have placed a buy stop order a few pips above 1.2777 level with a stop below the range of 1.2744 (possibly 1.2740). That would be a stop of forty pips. You should have also placed a take profit target at previous high of 1.2885. I like exiting at previous highs when I buy and previous lows when I sell. So, the news came out and market exploded upwards and reached the target in 7 hours. A little bit over 100 pips of profit! I would say that is a very good risk reward ratio! 

Now, if you wanted to place a sell order just before the news came you simply had to reverse the above mentioned order. You had to place a sell stop below 1.2744 level and stop loss order above 1.2777 level. Then define a take profit target that would have been around 1.2600 level, possibly a little bit higher (1.2610 as I like exiting ten pips before even number). Since the market went up you simply had to remove your sell stop when your buy order was opened and concentrate on your long trade. 

Let us look at how you possibly could have traded gbp/aud pair during the event. Just before the news (3 hours) the pair was fluctuating in a range of 1.5189-1.5161. It means you should have placed  a buy stop above the high of the range (1.5189) with a stop loss below the low of the range (1.5161). What about an exit? One way was to exit at previous high (1.5233). Another one was to exit at mid-point number of 1.5250. Of course, you could still keep the trade, but as you may see you would have lost most of your profit by now. 

What if you wanted to place a sell order? Just reverse the process. Your sell stop order should have been at 1.5161 (a few pips below it) and your stop had to be a few pips above the high of the range at 1.5189 (possibly 1.5195). The most logical place to exit your trade would have been at an even number of 1.5100 (ten pips above that). When you saw that the news was bearish for aussie and your buy stop was triggered you simply had to remove the sell order and ride upwards with the market. 

Looking at the price action now you can also see that these kind of trades can have very short term impact and market may reverse in a few hours, possibly in a few minutes. However, I still find news trading a good way to make extra money with my swing trading strategies. 

Ok, I will finish on this happy note. Be sure to read related articles to learn more on my news trading method. I promise to expand on this in my future posts. 

I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!

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Related posts:

10 essential rules for trading Forex news profitably

My top 3 Forex news releases

Short lived momentum reversal trading strategy

When market ignores the news

More on how to trade Forex news

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

eur/aud analysis

Happy New Year everybody! Today I want to give you my short term analysis for eur/aud currency pair. From now on, occasionally, I want to take separate Forex pairs and do forecasts and analysis on them. Some of them might be long term, some short term trades, some maybe covering only a few days� period and predictions for a day or maximum a week. If you have been reading my blog regularly you must have found that I like crosses and eur/aud, as well as gbp/aud have been covered in my posts (with lots of examples) quite a few times. Last year was very good for these pairs as they have been in very big swings (both up and down) that lasted for 2-4 months. It was pretty easy to trade the pairs for swingand trend traders and the securities simply change trend at the peak or bottom and trended in the other direction with minor retracements.  How about this year? Let us think together!

Euro was very much pressured by these huge debts from mostly South European countries and a lot of economists, finance analysts, investors, speculators and average traders doubted whether the European Union will survive. So, we saw sharp moves in Euro crosses. However, as in the end of July the head of ECB announced that the Central Bank was planning to do anything it takes to save the Euro zone Euro bounced off significantly and strengthened against most currencies. The move continued till the end of the year and some believe it is going to continue this year too (at least against Japanese Yen and US dollar). This might be true. However, I do not think Euro will be that strong against commoditycurrencies. Why?

If you look at daily charts of various Euro pairs (and possibly Pound) you will see that at the end of the year Euro and Pound managed to make new highs against US dollar and Japanese Yen. However, it failed to do this with Australian dollar. Look at eur/aud and especially gbp/aud to see for yourself. 



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My predictions about eur/aud moves in first quarter of 2013

On the 7^th of October eur/aud reached its� peak and started ranging. Just before the end of last year it tried to reach this peak (on the 27^th of December), but failed and reversed sharply. In my opinion it will continue going down till some significant supportis reached. I believe Euro bears will target 1.2160 (the low of the range) that was made on the 12^th of November (2012). I am not sure whether a downtrend will develop or not. My best guess is that range trading will continue. BOA (Bank of Australia) indicated that they are not planning to make any more rate cuts. This is bullish for aussie. However, they have not made any hawkish statements about rate increases in the future either. That leads me to think that the pair may continue in the range for the first quarter of 2013. 

eur/aud range top and bottom

For the time being the top of the range is 1.2830-1.2800 level. I think these levels will not be reached soon. I might be wrong, but still it is my speculation. 

The bottom of the range stands at 1.2160-1.2100 level. With some volatility and bounces the pair has good chances of revisiting this level again. Don�t expect it to get there in a few days. The pair sits at support at the time of writing and there is a �noise area� ahead with some bumpy ride down (a few days down, a few days up). Look how the pair was going up from the 13^th of November to the 9^thof December. Pretty shaky ride, huh? Shaky it was. The same can be said about a swing down that happened from the 7^th of October till the 1^stof November (2012). This and the above mentioned moves are very similar. It happens quite often. If you see a strong move up (in a range) you will see a similar move down in a very similar fashion. Support and resistance levels of these moves will also coincide. Action equals reaction and vice versa. Have this in mind. If you study charts more carefully you will see a lot of moves that look like mirror trades or inverted trades. 

Possible eur/aud support and resistance levels

Look at the chart below to find current possible support and resistance levels for the pair. Red lines represent support and resistance areas. They maybe subjective as technical analysis deals with the past and any significant fundamental piece of news can change those technical areas that were important in most recent past. The same can be said about �noise areas� - a level where currency pair stalls for some period of time. 

How to day trade eur/aud 

How can one take advantage of this information? If one has very small capital it is quite logical to try to day trade eur/aud limiting risk on each position and trying to increase profits. If we assume that we expect a swing downwards to continue we would be willing to pick only those trades that are in the direction of the swing. The first trade could have been made at the break of 1.2670 level. The pair formed a reversal pattern at the top and when the pattern (123) was confirmed by breaking the above mentioned level we knew that a real reversal took place and the short term trend is now down. 

Now, there are a few possibilities to implement these trades. One is to wait for retracements that often happen during Asian sessions and then place sell orders when the retracement is over and moves in the direction of the trend continue. This usually happens during European sessions. I see a lot of possibilities to trade in the direction of a trend during London session. As has been said, moves usually start during European session, continue or stall during US session and prices usually retrace during Asian session. In the morning, trends often resume. Not always, but more often than not. So, if there is a retracement in eur/aud it is an opportunity to enter a day trade with some 30-50 pips stop loss and a take profit order somewhere near the closest support. If you are planning to open a few positions you can exit the first one at the closest support and another one at the next one. Of course, you can have more than a few positions. You have to be sure where you expect to exit each position though. You see my levels of support. Try to draw some of your own and make your own decisions. 



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Ok. I hope you benefited from the post. If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.

eur/aud and gbp/aud outlook and technical analysis

Today I want to concentrate on Forex crosses eur/aud and gbp/aud and share with you my expectations about upcoming tendency in the pairs and possible targets. I enjoy trading any security that trends whether it some currency pair, a stock or gold. I like repeating the phrase of Jesse Livermore that �big money is in big moves�. More often than not you do not even have to be concerned about your entry level as the tendency pushes the security in the direction of the move quite soon and even if you entered the market at the wrong time you will be in profit sooner rather than later. What you need to think more is your position sizing and where to place your stop. You want to maximize your profits and minimize your risks. This is how you manage to make money even if you were late to jump on the first wagon of an upcoming train. 

Ok. Let us talk now about eur/aud and gbp/aud pairs. If you have been reading my posts you probably know my opinion about trends in various pairs. Do your own analysis and you will see that when some currency is very strong it usually is strong against all the other currencies. Your task is to find out the strongest currency and trade it against the weakest one. As of now, Australian dollar seems to be the strongest. You may notice that Australian dollar was in a downtrend from the middle of August (this year) against Euro and Pound. They performed best against the Aussie. However, you should also remember that those that were the strongest become the weakest when a trend changes and the weakest also become the strongest. 



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As I look at my charts I see that the shift has taken place and aussie is doing very well, especially against European currencies. It is not that powerful against US dollar and Yen as these have also recently been weaklings, but will gain strength pretty soon. Now what makes me think that eur/aud and gbp/aud are going to go sharply down? I have both fundamental and technical reasons for that. Let me start from the technical ones.

If you look at longer term charts you will clearly see that both eur/aud and gbp/aud are in long term downtrends. It means that when you see the pairs rallying up these are corrections, not a significant change in trend. You can also see that both pairs end up lower from previous peaks that were reached during previous rallies against a major aussie up trend. Whenever you see a pair (that has been in a downtrend) doing a rally and approaching to its� previous rally peak you should follow price action. Is the previous peak going to be reached? In most cases it is not and you can start playing from the short side. 

While being in a counter trend rally a pair usually forms a breakout zone which becomes an entry level for us to play from the short side when that particular pair gets back to its� main trend again. At some point, while going against a trend a pair experiences sharp reversal days 3-7 days and then continues rallying against a major trend. The area where it stops and continues its rally against the prevailing trend becomes our entry level (if you are a breakout trader). If you look at eur/aud pair you will see that our entry zone for going short is around 1.2325 area. This is the place where the pair continued its� move against a major trend after some days of retracing. 

You should remember that this is purely technical stuff and this area should not be applied without fundamental stuff. Now, if you do remember my previous posts you know that interest rate decisions are key fundamental events that sets currencies going and major turnarounds happen when those economic events happen. If you look at economic calendar you will see that on the 6^th of November BOA (bank of Australia) released its� interest rate decision. Contrary to expectations of economists and analysts the Bank did not cut interest rates but left them at the same level (3.25), which is very positive for Aussie. And for us currency traders who long Aussie and earn interest on our long positions. 

So, if you look at the chart you will see that at the moment of the release eur/aud was at the very technical level I have already mentioned in the post. The news was released and the pair banged through the level. The same thing happened to gbp/aud pair. I must admit that we have missed some of the move, but you can never catch all of it and should be glad to jump into a move when it is at the strongest. There are some events scheduled that could impact prices for the time being, but in my opinion the direction of the above mentioned pairs is clear � downwards. Tomorrow is a big day: BOE and ECB interest rates decisions. However, having in mind poor results from Europe today and average last week we may assume that ECB will surprise investors. The same will probably be true with BOE. So, my best speculation regarding the direction of the pairs is down. 

I likewise believe that there will be some days when the pairs will try to resist the main trend and start rallying. This will present us with more opportunities to add to our shorts and increase our profits. Unemployment data from Australia later in the day can also impact prices very much. It can also be another opportunity to short the above mentioned pairs again. The biggest events are tomorrow. So, be patient. 

As you may understand tomorrow announcements will have deep impact on other Euro and Pound pairs: eur/jpy, eur/usd, gbp/jpy, gbp/usd, eur/gbp. I am mostly bearish on Euro and looking for eur/usd and eur/jpy to depreciate a lot. However, this is not the topic of the post. 

I believe I will finish now and you will be able to judge for yourselves about my predictions regarding eur/aud and gbp/aud pairs. I expect gbp/aud to go to 1.4800 level and eur/aud 1.1700. If you intend to implement some trades on your own always forget to place a stop loss and let it not be bigger than 2-5 percent of your equity. And do not forget your profits run. Trends do start and they make us investors rich!

Good luck in trading.

If you liked the post I would also be happy if you gave a plus on Google+, tweeted, liked it on Facebook and other social platforms. Have a nice day. 

Vytas.



If you want to see and experience what real investing in financial markets such as Forex, stocks and commodities is all about I recommend trying innovative social investment platform of Etoro. Initial deposits are as low as a few hundred bucks. The best dealer I have heard of so far!
http://www.etoro.com/A41516_TClick.aspx 

Disclaimer

Trading financial markets carries a high level of risk, and may not be suitable for all investors. All information on the blog http://trend0.blogspot.com/ is of educational nature and cannot be considered as advice, recommendation or signals to trade in any financial markets.