Euro to USD - Daily Candle Chart 3rd April 2009

Euro to USD - Daily Candle Chart 3rd April 2009

Yesterday’s wide spread up bar was largely as a result of the rise in equity markets across the world following the G20 communique released in London in the late afternoon.   Since my post yesterday I’ve had a number of emails asking why I recommended trading short in the euro vs dollar which is completely at odds to what actually happened on the day and is one of the most difficult concepts for novice forex traders to grasp, in that a daily candle will contain many peaks and troughs throughout the day.  To illustrate the point I am including both the daily chart but also the 5 minute chart from which you will see that there was a clear shorting opportunity from 17.45 (2 shooting stars and a hanging man), with a reversal bottom at 19.15 (hammer and a bullish engulfing).  Even allowing for spreads, entry and exits this move yielded a total of around 50 pips on the short side, which may seem curious given that the day finished on a wide spread up bar.

Euro Dollar - 5 minute Chart 2nd April 2009

Euro Dollar - 5 minute Chart 2nd April 2009

To return to today with the likelihood that the Non Farm Payroll numbers will come in worse than expected (see full explanation on euro to dollar site), and given that yesterday’s close was above all three moving averages we will definitely see a move higher by the euro at some point.  This is also reinforced by the current state of the dollar index which I cover in detail on my currency option site.  With all markets expecting dollar weakness the only issue is deciding on your entry and exit points and my advice is very straightforward.   The NFP data is one of the few fundamental news releases which is almost guaranteed to produce a knee jerk reaction based on the headline number, with the market then absorbing the detail of the release and the consequent implications for the broader market.  As a result the currency will initially move dramatically in one direction sucking in traders much like a cyclone only to promptly reverse shortly afterwards.  The perceived wisdom of these moves is generally attributed to the above whereas in fact it probably has more to do with the major banking players triggering stops.  Whatever the reason it does provide an opportunity, provided you view this play as a “hit and hope” trade, rather than one with any degree of certainty.  As always you MUST have a stop loss in place – how wide you place this is dependent on your appetite for risk and reward.  My suggested strategy is to use the 5 or 10 minute chart while waiting for the knee jerk reaction to subside and then trade any obvious signals such as shooting stars, dojis, hammers, hanging men and engulfing candles.  Good luck.

You can keep up to date with all the latest fundamental news, latest currency news and live currency charts by simply following the appropriate links.  I have also included information on an excellent ECN broker.