In Price Action Trading Strategy

It’s oh so easy to focus on the negative because it is, after all, oftentimes a lot more interesting than the positive. The day started off great……good news and positive outlook, the EU rolling up their sleeves and getting the job done. The top two headlines this morning were:

• EU Leaders agree on a “Debt Crisis Tool” to maintain headway with the ECB saying it will nearly double its capital base in order to do so (root cause bad of course, but EU positive on the notion of “good news”, which has tended to fade more rapidly in recent months – there is nothing new about bailouts anymore)
• German business confidence rose to a December record (EU positive)

….And then Moody’s comes along (who as the name suggests tends to get people “moody” and apologies for the terrible joke) slapping Ireland with a 5 notch downgrade – Aa2 to Baa1 – sill not junk status but right on the border (EU negative).

For all of the good things that might come, and taking into consideration the mere size and contribution of Ireland in regards to the rest of the EU, the shock lead on by what could be considered somewhat expected news (Moody’s downgrade) sank EUR/USD back down through yesterday’s lows.

We all saw the downgrade coming, but reality realization of this magnitude is perhaps another issue. Moody’s, who attempts to best “objectively” measure their ratings laid it on thick today, and the U.S. / completion of the London session just drove in a hard nail through the 1.3180 area, bringing EUR/USD down to the 1.3136 support zone.
In terms of this retracement level, a while back some of you might remember me discussing the disqualification of random peaks in price surrounding an otherwise flat zone. If not, here is a very good example of it. We just punched through the 1.3180 area, triggering momentum sells, into this “plain” where we are getting a “cool-off” retrace.
EUR/USD, hourly

Irish 5-Year CDS snapshot
Source: Bloomberg

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Showing 8 comments
  • mids99

    I'll have to see if I can find that article as I'm not too sure about what you mean regarding the disqualified peaks. I'll go use the search function…

    I was watching this and could see some decent support lining up with the 61.8 fib, not so much at the 3/4 pull level but the move down was strong. The support that you pointed out at the price where it retraced was also exactly at the 1.272 extension.

  • nobrainertrades

    Yes and good call on the ret…. Actually it was in an old video…just found it..\/2010\/05\/implica…
    I was actually referencing a kickback on a trend, and stalling points along the way, but the concept is similar. Thx mids.

  • mids99

    ah great, thanks for the link.

    I was just reading about the IMF report on Ireland. Total projected debt at the end of this year is over 1000 % of GDP !

  • ronald


    The link you used is not functional, or it's my computer. Good point made tho!


  • nobrainertrades

    Think it should be ok now. Thanks Ronald!

  • bagz

    Wonder how long it will take for these downgrades to start to bleed into the lenders…. Gotta love how the global discussion on this has focussed on the 'evil' debtors… and largely ignored the stupidity of the creditors.

    CNBC has a nice graphic… shows how deep Germany, France and the UK exposure is (old news but a good graphic).

    The UK can just debase it's way to success (ie any write downs in the case of a default britich banks could be easily bailed out- hurtful for the pound but not really a disaster… could trigger stagflation though)..

    But for france and germany, I think it would be a little more tricky, esp. given they don't want to share the burden… (not entirely sure how they can avoid it, denying something doesn't make it disappear)

  • Arturas

    Hi Steve,

    good article!

    could you share some sources of data u use for fundamental/sentimental analysis?

    i found 1 graph in one of your articles where it was grouped by currency latest important news.

    also which correlations you look at? 5/10 year bonds? DJI?

    could you go through your average day as when it comes to overall analysis? like what you look at first, what matters more, etc 🙂 would be nice reading it!

  • David

    Try this: page 8 of the NBT-manual

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