Friday wrap...

MARKET NEWS

The beginning of the week saw a risk on breakout of an otherwise range based market. The Euro grinded higher on hopes of ECB bond buying. Whilst the German government and their member of the ECB are in favour, the Bundesbank have been holding out. The move was further escalated by heavily overweight short positions on the Euro banking profits on positive Euro announcements, such as rumours circulating on Thursday that Spain will formally request a bailout. Much of this week's price action has been based on this expectation, as that is the only time the ECB will initiate their bond buying scheme which will put a cap on Spanish borrowing costs and allow the macro picture to play out. However, the main focus of the week was on the FOMC statement and the Fed's stance on additional QE3. The main points led to the prospect of additional quantitative easing at the September meeting, unless the economy picks up significantly. This is in response to the Fed's view of risk to the downside due to Europe and fiscal cliff. This caused a sell of in the greenback and further fuelled the Euro and British Pound rallies. However, the New Zealand Dollar and Australian Dollar have experienced lower volatility as weak data and negative economic news announcements come out of China. USDJPY caught the brunt of the FOMC statement as it got obliterated on the news announcements and wiped out five days worth of gain in one hour. 

TOP 5 TRADES OF THE PAST WEEK

1. EURUSD - Ascending Triangle Break Long 22.08.2012 The higher lows on the daily chart supported a break of 1.2440, trading the retest of the break and waiting for price action reversal (4hour low test) this trade is currently up 1.5%

2. EURUSD - Pivot Long 22.08.2012 As price broke through near term resistance, trading this phase two pivot resulted in +2%

3. USDCAD - Power Pivot Phase 2 Long 21.08.2012 Low Testing of a horizontal support level at 0.9840, as well as its oversold condition this trade is still currently running and up +1%

4. GBPCAD - Double Inside Bar Power Pivot Long 20.08.2012 Extreme indecision at horizontal support 1.5500, trading the breakout and this trade is currently up +2%

5. DJIA Stock Index - Engulfing Reversal Bar Short 21.08.2012 Reversal bar off a four year high, this trade is currently up +1%

EFFECT OF THE NEWS LOOKING FORWARD

All eyes are on Spain's formal request for aid, to activate the ECB bond buying scheme which will be short-medium term Euro bullish (although much is being priced in already) and key US news announcements to provide an additional edge over the Fed's decision on additional QE3 in September. Next week's US GDP numbers on Wednesday and the Italian 10year bond auction on Thursday will be useful indicators if price action supports the move. As always, let price action lead your analysis as most things tend to be priced in. Regardless of what you think should happen, trade what you see is happening now as that is what counts. As a trader we have to adaptable and change with the wind.