The Inhale before the Fundamental Storm is a Time for Conviction

Working within the frame of mind where we are simply trying to establish whether risk appetite is rising or falling can lead us down a dangerous road. While this paritcular fundamental driver can define trends and volatlity; there are periods when investor sentiment simply diminishes. When this occurs, the markets will still move (and can do so quite substantially); but the correlation that binds them will weaken. This is the situation we are currently confronting. The gravity of tomorrow's US GDP revision and the growing speculation that Fed Chairman Bernanke and crew are close to announcing a second stimulus effort is anchoring trader momentum. This impact on price action is that the risk aversion effort from the first half of the week is stalling and price action is mixed. For me, the fundamental and technical chop has led to retracements on some of my positions. This is a good situation to illustrate the need to limit exposure to individual currencies and themes. While I had many positions with the same general bearing, my position size has helped control overall risk.

Starting from worst to best, my short-term USDCHF range effort has been stopped out. This pair is difficult to assess because it has fully deviated from its conterparts thanks to the safe haven nature of the franc. I probably won't reconsider this trade until it closes in on either 1.0000 or 1.06 again. Both my EURUSD and GBPUSD shorts have pulled back as well and threatened former support levels. My initial entry on the EURUSD was 1.3185; so I am not concerned there. The stop on my reduced GBPUSD position is at 1.5640 though; so I will be watching that one closely. Elsewhere, my EURAUD short is back below its entry point and the channel has held; but we need a swing relatively soon or this setup will be negated. Furthermore, my half-size AUDCAD is still in the green but has moved no where. I still like the long-term potential here; so I am hesitant about just cutting and reestablishing.

For pending trades, I think the fundamental pressure for USDJPY is building. I would prefer to start building nearer to 80; but I will probably start getting in again at current levels and increase as we close in on 80 or after 85 and 86 give. Other intrday, short-term setups that I have been talking about in the Real Time News feed have played out well (USDCAD and GBPUSD); but we can't sit on those in this market. Waiting for volatility (breakout?) potential, I still really like the long-term descending trendline on EURNZD. And pehaps even the short-term trend line on AUDUSD highs from the early August swing high can offer an opportunity.