First, let's kick off this review with what happened overnight fundamentally. Big moves were made, and Powell's anticipated Jackson Hole speech pretty much greenlit the very first rate cut.
Federal Reserve Chair Jerome Powell's speech at the Jackson Hole conference signaled an imminent U.S. interest rate cut, which led to a decline in the dollar and a rise in other currencies like sterling, the euro, and the yen. Powell noted the need to adjust policy due to reduced inflation risks and increased employment risks. Traders are anticipating a quarter-percentage-point rate cut at the Fed's September meeting, with some betting on a more substantial 50-basis-point reduction. This anticipated shift in policy has weakened the dollar index, while currencies like the euro, yen, and sterling have strengthened.
Powell's comments, along with those from Federal Reserve Bank of Chicago President Austan Goolsbee, highlight a potential pivot away from the Fed's restrictive policy that began in March 2022. The pound reached a two-year high against the dollar, supported by strong UK economic indicators, while the euro hit a 13-month high. In contrast, the yen benefited from Bank of Japan Governor Kazuo Ueda's commitment to rate hikes if inflation targets are met. The overall currency movements reflect expectations of the Fed aligning with other major banks in cutting rates.
This is one of those trades where the analysis was on point but didn't pan out. I used to feel disheartened by these trades, putting in so much effort (not that it should be any less) only to have the trade go against me. However, after many years of experience, I've found some comfort in knowing that, regardless of the trade's outcome, the analysis was correct and the trade was executed.
There's no worse feeling than doing a great analysis, hesitating to hit the execution button, and then seeing the trade either A) hit your target profit (TP) and thinking, "Oh my goodness, shoulda, woulda, coulda," or B) which is worse, hit your stop loss (SL). Yes, I said worse, because thinking you made the right decision out of fear and not executing compounds bad habits and confusion with your trading plan overall.
These are silent killers that creep up, compound, and become harder to shake off by the time you notice. Basing trading decisions on emotion is always a red flag, rather we should learn to use them as signals and then develop a tripwire type of method to snap yourself out of it. (I’ll write more on this in the near future)
Before moving on to the next position, I wanted to mention the EUR/USD potential short that I didn't take because I had maxed out my risk. This was a classic Head and Shoulders Top where the right shoulder provided a short opportunity at the gold kill-zone (KZ).
This setup played out to nearly retest the lows before U.S. news sent it higher. These kinds of moves often happen when algorithmic trades jump in to join the momentum, amplified by traders with short positions who must buy to close when hitting stop-losses, resulting in more buyers.
During high-impact news events, this increased volatility can cause significant market moves. Additionally, after major news releases, major players scramble to adjust their positions to reflect new economic models, contributing to these market shifts.
I cringe at the phrase "sniper trade," so forgive me, but it's the term that best describes this trade for both entering and exiting. The long entry was executed on August 23, 2024.
Breaking down the analysis: Starting on the daily chart, the large solid bullish momentum candle on August 15th creates the range. The test below that daily candle range on August 19th failed to break and close below (BACB) that range.