- Last week, long legged doji on weekly chart. On its own, not sufficiently reliable reversal signal. But combined with 2 candles either side to form evening star, much better.
- This week, if we end up forming a black candle, preferably long bodied, will be good for EUR bears. Close below last week's low at 1.3771 = even stronger confirmation of turn.
- Am big long QE2 vs short EUR. Only marginal adjustment I am looking to make is to buy more Bunds to reduce TY/Bund spread, thereby increasing naked long TY.
- Otherwise, awaiting confirmation here for next trade (increase EUR short). The dojis seen in some of the other charts eg AUD/USD and USD/CAD do not worry me as other features of the respective charts continue to support those trades. Hence the big QE2/EUR spread.
- It is possible that QE2 = buy EUR/USD may become QE2 = sell EUR/USD if market thinks US QE2 will work and ECB no QE + strong EUR = drag on EU growth.
6 comments:
Just curious how you placing your stop on your short EUR/USD position?
Suppose you only have 1 position : Long Gold, because you believe QE2 will be bad for USD and future inflation expectations. Also because Gold chart looks good.
Now, suppose Gold goes up a lot and you think it has gotten very overbought in the short term and a correction is possible, but not sure if it will happen.
What do you do? You look around for something that is positively correlated to Gold, for which there is a fundamental case to be short, and which has technicals are not as positive as Gold. Then you short this thing. What instrument fits these criteria? One possibility, EUR/USD. Sell EUR/USD to protect your long Gold position.
So, now you are long Gold and short EUR/USD. Do you put a stop on EUR/USD ? NO !!!
You only get out when the reasons for being long Gold are no longer valid. Then you square BOTH positions.
Then one fine day, EUR fundamentals come back to haunt it and you've hit the jackpot. That's a bonus.
If it doesn't happen, the EUR losses are just insurance premiums to protect the profitable Gold position. It reduces P&L volatility and makes it easier psychologically to hold the long Gold position. The last part is priceless.
This is not the same thing as running a smaller long Gold position.
Awesome, thanks for your great insights. Really appreciate you taking the time to explain. So currently we are seeing gold maybe getting stuck in a range or failing to break through its recent highs. While the eur/usd is bouncing between its 1.377 and 1.41 range. Has this been messing up your P&L? or are you not worried by these short term fluctuations, and have a much longer time frame in mind?
Not a problem. As long as trade sizing is done correctly, the swings do not bother me.
Covered some short EUR/USD at 1.3800
Post a Comment