pair to range trade

Ranges. Congestion. Chop. These are common descriptors for many securities and some asset classes as market participants weigh the potential risks and rewards that have been carried over from last year.

Trading Tip – Ranges. Congestion. Chop. These are common descriptors for many securities and some asset classes as market participants weigh the potential risks and rewards that have been carried over from last year. So far in 2009, there has not been a clear drive in underlying risk trends; and some may argue that sentiment hasn’t made any progress in over two months (just look at the Dow). Such a long period of quiet is highly unusual; and therein lays the seeds of a potential breakout. However, betting on a clear break has flummoxed more than one trader. For our EURGBP setup, the threat of a break to trade looms. However, if the pitches into a bearish course, it would potential call an end to a rising trend that has been in place since September of 2007; and we would have a much more appealing trade on our hands. In the meantime, support on this pair is dense (the aforementioned trend is joined by the 200-day SMA, fib retracements and a long-term pivot); so there is substantial technical support backing congestion on an otherwise tame market. For our strategy, we have set an entry that is within the lower wicks of last month’s bullish swings; and our stop is set well below the pivot level. Our targets are also well within reason; but the second objective may take time to reach. We will close all open orders by week’s end.

Event Risk for Europe and the UK

Europe – After the ECB confirmed today that they would maintain the benchmark lending rate at its current level for the foreseeable future; speculators moved on to other, more pressing matters. Among the most urgent concerns for fundamental traders is the impact that Greece will have on the regional economy. The EU has said that there have been “severe irregularities” in the nation’s statistical data and Moody’s recently warned the country may be facing a “slow death.” What are the implications of a default of a member economy on the Euro Zone and euro? It is difficult to tell this early in the game; but they wouldn’t be insignificant. While this debate continues, traders can also look to a range of economic data for volatility and potential breakouts. Regional consumer inflation data will end the week tomorrow. After the weekend, the PMI activity reports will offer top event risk as leading measures of economic growth. The ZEW investor sentiment surveys will tell us how market participants are taking the ongoing deficit troubles in the Euro Zone.

UK – Following the considerable and steady rally of the past week, the market needs to once again reevaluate the fundamental health of the United Kingdom. Recent data has slowly built up hope of a solid recovery and recent commentary has encouraged discussion of interest rate hikes in the near future. However, most of this confidence is founded on speculators’ convictions. Tangible support for such a bullish outlook is still severely lacking. Looking at the listings for event risk over the coming week, there is enough data to perhaps offer a platform for such forecasts. Housing and consumer inflation data will tell us how threatening price pressures are going forward. For growth, employment data will take a sample of the economic bedrock. Finally the BoE’s minutes will tell us whether a hike is near.

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