Finally a little EUR/USD action! I was about to fall asleep...

So I've been sitting on a long EUR/USD trade all week getting more bored by the minute, and finally today the pair exploded upward through my limit order following the Federal Reserve's decision to keep US interest rates at 5.25%, based the weak US economic indicators and continuing inflationary pressures. The US stock markets are way up today as well, with the Dow Jones up over 1% at the moment.

Here's a picture of today's EUR/USD action from my daily charts, a dramatic contrast with the range-bound meanderings of the past several days.

And to think I was about to post about how bored I am with forex these days. Well, it's moments like these that keep it interesting. Now let's see if the market goes back to its tedious ping-pong match across a 50 pip range for the rest of the week. (Note to self: stop jinxing your trades by mocking the market.)

My Bad Day with the Euro

Today's EUR/USD trade turned out pretty ugly - my system's technical analysis pointed to further declines in the Euro, but then some nasty economic news from the Philadelphia Fed sent the EUR/USD pair spiking dramatically upward, sending my short position into the toilet and way too close to my stop-loss for comfort. (If my trade's in the toilet that must put my stop-loss somewhere down in the sewer.) I guess this is what I get for predicting further declines in the Euro in my earlier post!

Right now I'm down 94 pips on this trade, and while I'm telling myself that these kinds of losses are statistically unavoidable, it still hurts. And it certainly doesn't help that I've been checking on this position every 15 minutes, exactly the sort of overanxious, system-sabotaging behavior that I've advised against in the past. (In an effort to make myself feel better, I just calculated how often a trade this bad occurs in my system. Answer: just under 6% of the time, or about once a month. So I better get used to it.)

If nothing else, a bad day like this is good practice in maintaining a disciplined trading strategy...and frankly it feels good to be able to look past this trade and focus on executing the next one as precisely as possible. For all the other unlucky Euro shorts out there, I feel your pain!

Related topics:
Limiting your emotional exposure to the markets
Sticking to your trading system

Big Breakout for the Euro and Pound

Just wanted to cheer on this week's impressive upswing in the EUR/USD and GBP/USD pairs - fortunately I was able to jump into the rally with both feet and am currently up 370 pips with my GBP trade and 240 pips with my Euro trade. The EUR/USD pair is now at its highest level since September 2005, and the GBP/USD its highest since January 2006.

According to predictions derived from my study of the Dow Jones Industrial Average, today's surge in the DJIA points to a further increase in the Euro-Dollar pair tomorrow. Likely to see similar movement in the GBP/USD, which is closely correlated with the EUR/USD.

One word of caution - there's likely to be pressure building among traders to grab some profits soon (I know it's crossed my mind) which may begin to moderate this uptrend. Good luck Cable and Euro longs!

Interesting Correlations Between the EUR/USD and the Dow Jones Industrial Average

The other day I got curious about what correlations (and potential causations) could be found between the daily movement of the Dow Jones Industrial Average (DJIA) of shares traded on the New York Stock Exchange (NYSE) and the activity of the EUR/USD currency market. And I found some...at least in the 3 year data set I was studying, an admittedly limited sample.

Here's how I did my research - first I downloaded daily EUR/USD price data available on the Metatrader forex platform, which I've discussed previously. Then I did the same thing for DJIA historical price data available from Yahoo! Finance.

Next I had to clean up the data a bit, since the EUR/USD pair trades on days the NYSE doesn't and so there isn't perfect overlap in their daily activity. Essentially this meant going through week by week and removing all the Sunday trading data from the EUR/USD data. With that done, I had nice sets of parallel data for each market. Then I started playing around with it, trying to determine if a bullish day for the DJIA equated to a bullish day for the EUR/USD, or the opposite. Same for bearish days for the DJIA. There seemed to be a good chance of it, especially since the NYSE market closes several hours before the EUR/USD hits its peak trading period. So it made sense (at least to me) that during this period between the close of the major US exchange and the kick-off of high volume EUR/USD trading, forex traders would analyze the DJIA trend and reach conclusions about its impact on the currency pair, and then place trades on that basis.

And that's what appears to happen on a statistically (and profitably) significant basis. A strongly bullish day for the DJIA correlates with certain trends in the following day's EUR/USD forex trading. And so does a strongly bearish day for the Dow Jones average. Now you may be thinking, enough build up, what are these correlations, exactly? Well, having put several hours into the project, I don't really feel like giving that information away just yet. Maybe someday. But hopefully I've given you enough clues to start figuring out some inter-market correlations yourself. Another market you may want to add to the mix is NASDAQ - you can find price data for this exchange on Yahoo! Finance as well.