Congestion Descends Over Most Assets, Except the Dollar

Over the first 72 hours of active trading this week, we have seen tremendous catalysts for volatility behind risk appetite and individual currencies. And yet, after passing the half-way point of the week, we see that these fundamental drivers have had little lasting impact on the markets because they contradict the larger trends. Among the stalled trends, we have seen risk appetite stabalize, the bearish drive following the RBA's hold on rates pull up, the BoJ's stimulus explosion ease up on the yen and the euro more efficiently ignore critical deteriorations in its financail system. One very prominent dynamic that remains intact: the dollar selloff. Momentum on the benchmark lending currency is fully the responsiblity of speculators who are fully preoccupied by the threat of Fed stimululs expansion. It is not wise to fight established trends even if they contradict (especially if the contradict) your bias. However, I feel it is just as advisable to not jump whole hog into a trade that is based on something as flimsy as speculative momentum. You can smell reversal in the air like a coming storm; so I will be trading with caution, waiting for bigger trades to develop and correlations to recover.

As for my positions, the unabashed rebound for the Aussie dollar and another strong push on the greenback has led to some discouraging developments in my book. With the dollar slipping, my short-term and small-size short channel setup on NZDUSD would hit its stop. My trade was on this ascending congestion pattern and not a reversal; so I am out. Perhaps drawing cross flows from NZDUSD, my EURNZD long would hit its trailed stop at 1.8410. Nevertheless, I long ago took a first target and the exit on this half is still 285 pips in the green. Another position to hit its trailing stop was GBPAUD. However, unfortunately for this one, that cut level was set at the breakeven. Looking at this pair again, though, I still like its potential. I have gotten back in long on a reduced size position at 1.6240 (with a 90 point stop at 1.6475 first target) and will be watching tomorrow's BoE decision very closely. As for my EURJPY long, it continues to advance and my trailing stop on the remaining half is up to breakeven; so I'm content with this pair. USDJPY on the other hand has slipped below 83. If we are still below this level by tomorrow (I'm waiting to see if there is intervention or a speculative roll), then I'll probably dump it and look for a better price. In the meantim, I'm still short AUDUSD (stop is at 0.98) and AUDCAD. The cross is in the month and the major in the red.

For potentials, my focus remains on EURUSD. The rising channel this pair is carving is unnatural. The reversal could be swift if it comes on the right change in fundamental backdrop. Drawing further interest, I like a long-term trend break on EURAUD with a confirmed move above 1.4350 (trendline, Fib and 100-day SMA). It fits my doubts with the Aussie dollar. And, since I don't want to fight the Aussie's advance, a possible breakout for AUDJPY above 81.35. Also of interest, EURCAD in its congestion between 1.41 and 1.3960 after a very aggressive rally.