The Dollar Picks Up with Volatility as Risk Aversion Sets In

The lull in price action yesterday actually fit the bigger market picture quite well. My take away from Monday's price action was that a number of important short and medium-term technical patterns were pushed right up against the boundaries of congestion, leaving the ultimate decision on direction up to the return of full speculative interest today. There is little doubt that a decision was made on direction (equities reversed, the dollar rallied and Treasuries jumped up the yield curve) and we would see interesting reversal and breaks for many of the risk-senstive pairs I was watching. Now we need to determine whether this is a move that was simply inspired by the return of volatilty or if it was a building bias that was only fleshed out when the markets were topped off. I have not made my decision yet as the turn is still relatively modest. I'll look for follow through tomorrow; but there are still a number of opportunities out there.

My list of potential trades has completely changed from yesterday. On Monday, I was looking at a lot of those pairs that were holding on the verge of breakout; and many of them have given way this morning. This is good though as I can reflect on the good application of rules that I have established after mistakes made in the past. Notable was the potential reverse head and shoulders formation on EURCHF that I held off on because it wasn't syncing up to fundamentals (I like to combine both tech and fundamental analysis). Also, my decision to stay out of EURAUD until something new developed, despite it still looking very appealing at the bottom of its channel, proved a good move with the break this morning. As for my new positions, the list is pretty long. The yen crosses (specifically AUDJPY, NZDJPY, CADJPY, CHFJPY) are all high potential with wedges that could quickly turn to breakouts or range opportunities. I'm looking at AUDCAD after a test and hold of former resistance as new support at 0.9450. GBPAUD has tested a very long-based pivot at 1.6745. And there are many more that will probably take a little more time to develop. I'm still looking at a lower time frame until momentum starts to roll on trends.

As for my established trades, the move towards risk aversion has been beneficial for the most part. My EURUSD short has pulled the pair back sharply from resistance. GBPUSD set a new intraday low; and I am looking to add if we get a close below 1.5300/25. Finally, the triple bottom on USDJPY is likely to conclude with a break below 83.65 and a quick push towards 80. If that is the case, I will be adding closer to 80. If we get the unexpected with a move above 85, I will add. Remember, this is a small size and long-term fundamental position; so entry price is important.