Trade of the Week | August 27-31, 2012

The news event of the week was Federal Reserve Chairman Ben Bernanke's monetary policy speech at the Jackson Hole Symposium. The week's biggest move on the EUR/USD currency pair unfolded over the six hours leading up to Bernanke's talk. A euro long trade which profited from that move gets my nod for the Trade of the Week (TOTW).

Rising expectations of (1) a new bond-buying initiative from the European Central Bank (ECB), and (2) another Fed quantitative easing program, have given Europe's single currency a lift against the US dollar over the past several weeks. At the start of the Thursday 30 August New York morning trading session, the EUR/USD was parked some 40 pips above the 1.2500 level.

Traders looking to buy the pair on a dip found multiple overlapping sources of prospective support situated in the 1.2480 to 1.2500 zone as the sun was rising over the US east coast. A trendline and the 4-hour 55 ema were positioned about a dozen pips below the psychological level.

A sell-off in the wake of comments by the Slovakian prime minister took the euro to the aforementioned trendline and the top of a 10-pip zone which affected price action on multiple occasions over the past several days.

As the EUR/USD reached the 1.2490 level during the final 90 minutes of Thursday's New York morning session, I described the long trade setup to members in our New York FX Training Room as a potential opportunity to front-run any US dollar sell-off before or after the release of the text from Bernanke's speech. The euro reached a logical long trade profit target at 1.2620 -- a level which defined the January low, and highs established in late May and early June -- during the first hour of Friday's New York session.

Traders who closed their euro long positions at 1.2620 were pleased with their decision. The following chart shows euro price action during the two hours following the release of the text from Bernanke's Jackson Hole talk. The EUR/USD fluctuated in a roughly 70-pip range for 30 minutes, yet was virtually unchanged some ninety minutes after the Fed chairman began his speech.