(By Mike Kulej) Announcement of bailout of the Spanish banking sector was received enthusiastically by the markets, at least initially. Most currencies became immediately stronger versus the Dollar and the Yen, forming gaps at the open. In case of the Euro, the center of attention, it gapped about 110 pips against the USD, in one of the strongest opening moves in months. Of course, the euphoria evaporated almost as fast as it had erupted, and the gaps closed as the prices corrected during the day, creating good trading opportunities.
Because the Euro produced largest gaps, it presented the best opportunity to go short. It took few hours for the EUR-USD to start pulling back, but the price formed a nice minor low to mark potential entry for a sell. I did not wait for the entire gap to close, getting out with 50 pips gain. Obviously, there was more downside, but I was content with this result.
Unfortunately, these gaps were detrimental to my other trade, the long in the NZD-JPY. I did not anticipate the jump here to be so strong, filling my buy order right after the open. Under most circumstances, I try to cancel orders if there is this kind of volatility at the open. It was too late here, so I closed the trade a little later at break-even. I will probably still go long this pair, but want to see more price development before deciding on the course of action. With any luck, the price will return to the 62 handle, presenting another breakout opportunity. We shall see within 1-2 days.
Mike K.