Boris and Kathy's FX Blog www.bktraderfx.com

First as usual we want to welcome all the new members especially all those that joined us on Friday. This week we are moving to a new format where we will try to offer two trade calls during the global trading day – one during late Asia early Europe session (5:00GMT-10:GMT) and one during late Europe early North America (13:00 GMT – 18:GMT) in order to better accommodate our subscribers across the world. Of course not every day will present a setup but generally you should see more trade ideas from us as well continued educational content on new trading strategies and important news developments in FX.



This week was a good example of low volatility range bound environment with few good ideas and we only traded twice. The only real play this week was in the USDJPY where we thought the BOJ would raise rates but the Japanese central bankers bowed to political pressure and decided to stay pat keeping rates at 25bp. For now the market has reluctantly accepted the BoJ decision, but with ever growing divergence between the yen and the other major currencies as well as yen and the Chinese yuan, this passivity on the part of the Japanese monetary authorities is clearly unsustainable and could lead to serious political protests if yen weakness continues much further.



Read our special report here http://www.dailyfx.com/story/special_report/special_reports/Yuan_and_Hong_Kong_Dollar_1168630109448.html



In any event we tried to play the yen story by shorting EURJPY and although we never got the trade off – it turned out to be the best decision of the week. Why? Because trading is the art of BOTH picking winners and avoiding losers. By using our stop entry method we avoided the unnecessary risk as news flow clearly ran counter to our expectations



Here is a recap of the explanation for those of you who missed our Thursday update.



“Next on the agenda is an in-depth discussion of the stop entry order and why we intend to use it with much greater frequency from now on. What is a stop entry order? It is actually a limit order that directs the trader to enter the trade at a WORSE price than the current market price. For example let’s say EURUSD is trading at 1.2920-1.2923 and you want to get short on a stop entry order at 1.2895. That means you will enter the trade only if EURUSD trades down to 1.2895 and will get short the pair at that point.



At first this tactic seems counter intuitive. Why would you want to sell something for less that what you can sell it for now? The answer lies in the fact that you do not know ahead of time if the pair will in fact will trade down. Every trade is simply nothing more than an educated guess. A stop entry order helps to confirm your initial trade analysis because if it is triggered that means that price is moving in the direction you predicted.



Does that mean the stop entry order always works? Of course not. Prices often break in your direction and then reverse. That’s part of trading and that why professionals always use stops to control and mitigate the unexpected. Nevertheless, the stop entry order is a good strategy because it creates a rigorous, logical approach to trade management by providing unambiguous entry and exit points”



Let’s now turn to the analysis of our two trades this week.


Short USDCAD 1.1682 + 20

We’ve been hunting this setup endlessly over the past two weeks and will likely return to it next week as well. The central theme in that trade is that Canadian dollar is oversold, Canadian economic data has been remarkably robust (note the stellar labor data two weeks ago and massive inflow of foregn capital this week) and the only factor that has held back the loonie has been the ever sinking oil prices caused by unseasonably warm temperatures in the Continental United States ( thank you global warming!) . Yet as we sit here in our local Starbucks in New York the weather this Saturday morning is far January like with temperatures dropping into the teens. As oil begins to bottom out and demand firms prices, the loonie should rally in turn. The only question has been to find the entries into the pair. Right now we are watching the 1.1710 barrier as key support level. If that zone breaks the pair could easily make its way back to mid 1.6000’s by early next week.


Short EURUSD 1.2914 –42



This was a mediocre trade – we were trading the good US news/lackluster EZ news idea – but should have waited until the pair confirmed our thesis and broke the 1.2890 support before coming into the trade. Furthermore, with dollar rally already long in the tooth, good news was having less and less impact as the pair was coming into the zone of support on the daily chart. Indeed what verticalized the euro, wasn’t any particular positive sentiment towards EZ economy, but sovereign demand from global central banks, who tend to be buyers and sellers strictly on price ignoring near term factors. Because of their massive size however, they can move markets irrespective of the news and that is exactly what happened in this case


EURCAD Box Trade



This week we also showed you the EURCAD box trade and wanted to share with you some of the reactions from your fellows subs.



Several key points to keep in mind about EURCAD pair.



1. Not all brokers offer it

2. Some brokers have very wide spreads on the pair which make the setup much more impractical to trade



This simply the facts of life in the FX business and the easiest way to overcome this problem is to do what most seasoned retail traders do – open accounts with several dealers.



As you know for own trades we use FXCM No dealing desk option and Oanda. While we never want to recommend any specific broker we do suggest you do your own research – a good place to start is www.fxstreet.com which lists most of the major dealers in the world. Our one final caveat is that we strongly urge you to trade with an NFA regulated dealer, but as always this is strictly individual decision and we simply offer our thoughts as point or reference for your own research.





Here, then are some of the EURCAD comments



Great insight, It will be interesting to see how you define your box. Your examples show a variation of time spans. Rob's box generally is defined from midnight to 7 am eastern. I really like the breakout box on all the major pairs as well. A ranging market is tough to manage consistently, with the amount of consolidation being the key to a good breakout trade. Thanks for all you do!

Gary



Hi guys, just wanted to let you know that this idea worked last night very nice. First lot was filled long at 1.5238 at 02:00GMT and an hour later and with 20 pips profit it was closed. Unfortuantely I wasn't awake to trail the stop in the second lot so i got out of it this morning with a loss but it doesn't really matter. I think that i might be putting a tighter stop in the second lot, maybe at breakeven point, so that i don't take a loss in case i don't hit the second profit target..

Cheers,
Alex



Hi!

I have been experimenting with an idea that seems to work, but you have to be a nite owl.



I put a vertical line on midnight. Then, I look at the 30 min ROI on the CFG SmartCharts. I drill down to the 5 minute ROI for agreement & enter. My entries are positive. However, I haven't developed the art of targeting & usually get nervous & take profits before the full extent of the move.



The EURCAD was great this morning.



Can you provide help for the targeting & perhaps find suggested calls for this time frame? You could call it the "Wee Hours Trade" or the "Insomniac Trade". :)



Best regards,

Charla
Long EURGBP on watch



Finally, we also want to leave with what we are watching for trade at the start of this week. We like the EURGBP pair for a bounce to the upside, strictly on a statistical basis.

Since the launch of the euro in 1999, there have only been 4 instances where moves in EURGBP have extended 9 trading days (having reversed on the 10th) and only 1 instance where it has extended beyond 9 trading days which was back in august of 2005. This move exhausted on the 11th trading day. With pair having made a double bottom on Friday we want to see it opens on Sunday and may send you an alert then.



Have a great week-end

Boris and Kathy