The common currency closed the week with a solid appreciation, climbing to 1.3454 versus the US Dollar. It was a broad-based strength, across the entire basket of majors. Seems like every piece of news coming from the Euro zone is interpreted as EUR positive. Only time will tell if this trend persists, but for now the sentiment is strongly bullish. Of course, when everything is “great” it is easy to be swept in the tide of optimism and forget that markets cannot stay one-sided indefinitely.
On Friday, market participants liked data covering repayment of the LTRO by European banks. These institutions are scheduled to repay EUR 137 billion borrowed in December 2011, which exceeds the estimate of EUR 100 billion. This suggests that banks are in a much better shape than previously thought, hence the optimism in the Euro. The next repayment date is on February 27 and as of today, analysts predict a less eager participation, probably below EUR 100 billion. This estimate will likely change as the date approaches and the Euro could experience another jolt in volatility.
I will worry more about the EUR next week. Meanwhile, it is time to review trades discussed in the past few days. One of them was a possible short in the AUD-CHF. The price had built a possible top with support at 0.9760, crossing of which was the sell signal. My actual entry was few pips below, at 0.9755. The original objective for this trade had been 80 pips, but on Friday, the selloff became so rapid, that I held on to it for a little longer. In the end, I settled for 100 pips. The actual low for the day was at 0.9625, another 30 pips lower. Still, overall it was a good trade.
Unfortunately, not everything went as smoothly for me. The trade in the CAD-JPY, also a sell, did not work out. While it started positively, quickly gaining almost 50 pips, the price reversed direction. I was watching the EUR-JPY, treating it as a leading instrument, which suggesting a strong rally under development. With this in mind, the CAD-JPY short was abandoned for a loss of 61 pips. Even though, next week I will most likely look for more trades in the Yen pairs again on the short side. Have a great weekend!
Mike K.