EURO TRADE
EurJpy:
We closed at 130.025 before the ECB statement making 302 pips.
Why 130.025 and not 130.000 as planned?
Actually our target was hit during the knee Jerk prior to the release but because our lower positions were near the price in the minutes ahead of a huge event we move the TP at 130.025. As a rule of thumb the companions must be secured when the target (here the price area and the event date) are reached on the main pair. Avoid locking before big catalysts because the fast price movements generates slippage (a lock becoming a stop order when triggered) mainly if your platform is from a retail broker. We are now flat and will stay so on the pair. We have no companion anymore for the Euro trade. The EurAud is now linked to our AUD trade. We will probably re-position higher if the NFP numbers are above expectations.
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EurUsd:
We closed all the positions below 1.0940 with a gain of 84 pips but way lower than planned.
It’s the worst Exit we have ever made;
Before the ECB decision, probably the most important monetary policy event of the year, we used a lock when we saw our target out of reach (it was hit later). A lock being a stop order we suffered a huge slippage of 10 pips due to the pace of the price formation and the bucket-shop platform. 10 pips on a position of 850K is just too much you.
The second mistake was to think that when the price pulled back from 1.0740 after taking the stops waiting there, it was going to settle down below 1.07. It’s what it did for 15mn, we locked here at 1.0705 thinking that it’s going to quietly return around 1.0650 until Friday’s NFP ahead of wich we intended to close all. But, no, it just pushed higher like if the ECB decision just hit the wire, with a tick data accelerating on all the Euro crosses. Our lock was hit, surprisingly with no slippage this time. This 3rd December on EurUsd we made +$3.7K when few hours before we were around +$12K floating . This is a very weak exit management and it’s very frustrating since we are trading this rare catalyst for weeks now and we were right on timing and price level. The best and only exit option would have been to deleverage around 90% of our exposure a couple hours after the London opening, because our average position was not really far from the trading price and a lock is not suitable for fast market.
The price formation surrounding the release was epic and it’s very important to try to understand it.
We are let’s say 15 mn before the release.
First we had at 1.0550 a well documented KO barrier, that was still in place (on some retail platforms you may see it as taken out, but on Thomson/Ebs the low was at 1.0502). This means that the barrier players will use the thin market to take out the barrier and likely will trigger the sell stops below it pushing the price lower, but not too low because of the 1.0500 level 50 pips lower. The 1.0500 level has a huge barrier (well protected) and is a historical level where the massive liquidity gathers all the bidders and buy stops, therefore no chance to get there before the release but the 1.0550 is an easy play.
From this liquidity distribution we decided to TP at 1.0535 (see the earlier posts). When the 1.0550 barrier was hit we saw the stops being tripped but slowly taking us around 1.0540 (5 pips above our TP). There we decided to lock half of the positions higher in case our TP is not touched. THIS IS AT THIS VERY MOMENT WE MADE THE MISTAKE TO LOCK AHEAD OF A RARE EVENT RATHER THAN CLOSING, THINKING THAT OUR TP WOULD BE FILLED DURING THE USUAL KNEE JERK FEW SECONDS BEFORE THE RELEASE AND OUR LOCK WILL THEN BE CANCELLED. AND A BETTER OPTION WOULD HAVE BEEN TO TP AT 1.0555 (5 pips before the barrier).
Then we had something very very rare, a misleading leak on twitter from the FT (FT is just the most reliable source), saying the ECB is maintaining its rate. It’s a shock pushing the price 150 pips higher (liquidity desert) hitting our lock with big slippage. Because many of the participants were still waiting for the ECB , the FT push retraced a bit around 1.06 after clearing the 150 pips range both sides drying up liquidity even more. Few minutes later the FT deleted its tweet, (this means that they were wrong), triggering a sell off that hits our TP for the remaining lower positions. Few orders were needed to generate the gap because there were no orders available on the other side beside some crazy techs. Just imagine the mess among the bots and operators, buying back on the FT leak than operators resetting after the selling on the deleted tweet, than buying back again after the release with many waiting for direction from their analysts trying to decipher the ECB statement. Analysts waiting for Draghi’s press conference to really understand what lies behind the decision. After all this the price calms down around 1.0740 and starts to steadily push back near 1.0650 during Draghi’s presser. Here we locked above 1.07 all the remaining positions (not the 2 highest) in case Draghi launches some bombs during the presser but thinking that the feared massive short squeeze was behind us.
At the end of the presser, market was facing the fact that one leg of what made the Euro vs Usd a sell is broken. The ECB decision has hugely narrowed the anticipated differential in terms of monetary policy drivers between the Euro and the Dollar . With a crucial NFP announcement 24 hours later that will weigh on the other leg, that is FOMC decision on rates, real money starts covering hitting our lock at 1.0705 and triggering the feared big squeeze pushing the price 450 pips higher in less than few hours.
And now what?
It will Just take more time to see the Euro below 1.0500. What is important for us is to reassess our view so we can decide on a timing and a valuation level.
On our professional platform we were in a better place. Our average exposure is around 1.1150 because we are selling from the 1.14 area. More generally we cannot be exposed near the price (200-250 pips distance) during the last hour before such a release because of possible leaks and rumors in a thin market. After the release, the exit in very fast market of some or all of the remaining position if needed, is done with one click on price board while monitoring the DOM to ensure a good execution. The pace of the tick data and the size of the order flow of your broker book (no DOM and no tick data on global FX unless you have a credit line on the Interbank) give some though imprecise indications on how serious is the current move.
Twitter is probably the best source of information. you just need to follow a good list . Here is a link to one of the numerous articles about the FT tweet (worth reading):
http://www.smh.com.au/business/mark...zy-ahead-of-ecb-decision-20151203-glf7qi.html
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