In early trading on Friday, the biggest event came from china, in form of the Gross Domestic Product numbers. The data was not entirely clear – for Q4 the GDP grew at 2.0%, below the forecast of 2.3%, while on annual basis it came in at 7.9% versus the expectation of 7.8%. Markets seemed to focus on the quarterly figure, and the Australian Dollar became the most affected. The Aussie fell about 50 pips and then continued slower for the better part of the day, albeit at a slower pace. Few prior to this announcement, the New Zealand Dollar reacted sharply to the domestic inflation data. The Consumer Price Index was at 0.9% for the year, against than 1.2% predicted, sparking fears of interest rate cut in the near future. In a sharp move, the NZD-USD lost about 100 pips in about an hour. During the afternoon session, the Canadian Dollar experienced own pains, sliding more than 100 pips versus the USD. All said, it was a rough day for the commodity currencies, perhaps setting up even bigger moves next week.
In the last post I continued with the thread of shorting the EUR-JPY, the prevailing theme this week. On the 4H chart, this pair formed a divergence with the MACD indicator, which is often followed by a correction. In order to enter the trade I needed to see a confirmation in form of a bearish reversal candlestick pattern. During writing of the update, the price was painting a possible confirmation, but I had to wait until the period was closed. While the candlestick was indeed bearish, it was also very weak – neither a doji, nor a harami. If anything, it indicated indecision, so I passed on the trade at that time.
A visibly better situation developed eight hours later. The EUR-JPY made a marginally higher new high, but more importantly from my point of view, it also created a better bearish reversal pattern. We can see a bearish engulfing line. It was far from perfect since it did not close near its lower extreme, yet it engulfed the real body of the previous candle. That was enough for me and at 120.04 I entered my short.
Initially, the price moved in the desired direction in a good pace, but it faltered within two periods. I decided to close the trade at 119.87, or 17 pips gain. Ideally, I should have let this trade ride, but was not willing to do it going into the weekend. Even though the price level is still well within parameters on the trade, a lot can change over the weekend. It was simply better to finish the week on an admittedly minor, but positive note. Besides, I can always reenter the short under the low of 119.33, seeking the general area of 118. Have a great weekend!
Mike K.