Todd spends some time in his course discussing preparation for the day’s trading. One of the key elements of that process is knowing what potentially market-moving news is on tap, and when it will be released. I often trade numbers that are released at 8:30 EDT in the same way that I do Todd’s first half hour breakout, but the 10:00 EDT releases often create better breakout opportunities than are present on “regular” days.
Sometimes it’s necessary to dig a bit deeper. It was widely known that the European Central Bank would be announcing its decision on rates this morning. The more important event, however, was ECB Pres. Draghi’s press conference. He had promised during a speech last week that the ECB would do everything in its power to support and preserve the Eur0. Market participants were eager to learn what policy changes might be in store.
My desk saw aggressive buying of EUR/USD even before the rate announcement by hedge funds, including some that seem to have consistently good information. From a low of 1.2256 at 7:33, an hour later the pair had reached 1.2405, and lots of stops had been run, and done.
From there, it was downhill. Paul Newman as Luke Jackson famously observed, “Sometimes nuthin’ can be a pretty cool hand.” That is typically not the case for central bankers, however, and what Dr. Draghi offered in the way of policy initiatives was trivial. There were numerous headlines reporting his remarks. They were characterized by “may”, “will be addressed”, “possible”; in general, conditional and uncertain responses to a real crisis rather than a clear view of steps to be taken.
This was a day during which stops almost certainly hurt; anyone short Euro would have ultimately been on the right side of the trade, but I personally wouldn’t have had the intestinal fortitude to hang on above 1.24. That would have been the correct moment to sell, however; over the subsequent hour, EUR/USD dropped back to 1.2174. That’s roughly 1.8%, a big move for that time span.
From a trading standpoint, the prevailing mood in the market was already that EUR bounces should be sold, and that the Emperor of the ECB has little or no clothing to stand in. Those views are now reinforced. On the hourly chart, the area between 1.2270 to 1.23 looks capable of providing some resistance.
Best of luck!