Momentum Following Yesterday’s Shock Cools, Leaving Breakouts Hanging

The strong wave of fear and risk aversion that swept over the market yesterday has receded. This is a critical shift in momentum considering some of the most liquid currency pairs have just rolled over into breakouts that require follow through or risk a quick reversal. The fundamental contrast between today and yesterday is particularly remarkable considering the catalysts between the two days are simlar. Reflecting the overwhelming impact on the market that the existing home sales report had; it wouldn't be a stretch to expect a similar move with today's disappointing new home sales report. However, there is a sense of acclimation that must be accounted for. Considering we were already met with a shock and high volatility yesterday; the general tolerance for 'surprise' is far greater and the influence on the market will thereby be diminished. Does this mean a definitive end to building trends and new breakouts? Not necessarily; but the longer it takes follow through to develope, the greater the threat of reversal.

As for my positions, my biggest change to my active trades was cutting out of USDJPY at a loss. I was waiting for a close below 85 as per my rules and Tuesday's end was well below that level. I have not abondoned this trade however - it is in fact one of my favorite, long-term potential trades. A level closer to 80 or a flush and reversal in this recent break that overtakes 85 and 86 will encourage me to get back in. For trend positions, both my short EURUSD and reduced size GBPUSD short are still in play but have stabalized. In contrast, I still have my two range setups in place. USDCHF has slipped below my 1.03 entry; but the stop at 1.0230 hasn't been tested yet. My reduced size EURAUD put in for a very aggressive test of its trend channel top; but my wider stop (which was the reasoning for the reduced position size) has stood up so far - just in case this is a false break and reversal pattern. Finally, I am stil short my half size AUDCAD waiting for clear direction.

On my potential trades list, USDJPY is under constant scrutiny. However, I am also keeping an eye on both AUDUSD and NZDUSD (the latter of which actually broke support this morning); but I am less likely to take a position given my current exposure to the dollar. Another interesting setup is EURNZD's return to its long-term descending trendline. A move above 1.8325 would go a long way to confirming a major reversal effort.