The ECB Meets Tomorrow — Here’s How That May Affect You

For long-time readers, I
apologize
that the recent columns have been showing more of a focus
on FX. However, in light of the recent
trading activity, it seems foolish to not participate and share with you my
thoughts and actions. As traders, our income comes in pockets, and when things
heat up, you need to step up to the plate. Presently, FX is trading well, so
for me the choice is obvious. While I still knock out a handful of trades each
morning with HVT, there are no real solid
stories to share with you. If you know

HVT techniques
, you know what to do. The relative calm in intra-day
equities provides little discussion, except selectivity.

Tomorrow the ECB
(European Central Bank) meets to discuss monetary policy. This meeting may be
critical for the short-term direction on the Euro (EUR). There is a growing
chorus of European officials and CEO’s expressing concern about the rise in the
EUR taking a toll on the critical export
market. For now, these fears have not proven factual. I will be on the lookout
for some sort of “outlier” comment or policy change (reduction in interest rates
etc) that may throw cold water on the recent rally. If this happens, it will
require 2 things:

1. Evaluate the “core” position established in
the EUR on Monday at 1.2681. Do I cut and move on, or hold the course?

2. Provide a fantastic short-term trading
opportunity (short)

Frankly, the answer to number one is complex, it
will really depend on what exactly is said. Despite that, will it be enough to
really alter the macro framework which has benefited the EUR vs. The Dollar?
The only obvious answer is # 2. Any such statement will result in a sudden drop
in the EUR.

The EUR/GBP
is set up technically as a short currently, a policy statement like the one
mentioned above, would provide a solid story to the technical backdrop.

I closed out three FX trades yesterday which were
entered as swing trades to begin with. Two were entered on Sunday, and one was
entered on Monday. The strength of the dollar index yesterday morning put
pressure on most of the major pairs, hitting my stop loss. I still maintain
core position in all three with a far more generous stop loss. Below is the
summary of the closed trades:

Long EUR at 1.2681 stopped out at
1.2750

Short $/Yen at 106.96 stopped out at
106.45

Short $/CHF at 1.2384 stopped out at
1.2295

A good start to the year. I will keep you posted
as trades develop.

Support/Resistance
Numbers for S&P and Nasdaq Futures

S&Ps Nasdaq
1130-1131* 1526
1126 1508
1120 1475
1113 1464
1106 1455
1101 1444-1446*

As always, feel free to send me your comments and
questions.

Dave