Fundamentals Versus Speculative Momentum is as Important as Being Right Versus Marking Money

Investor optimism hit a new gear through Thursday's session as Asian and European traders responded to the Fed's decision to increase is stimulus efforts. From a capital flows standpoint; this makes sense. As the US central bank increases liquidity in the system, the leveraged speculation that results sends capital towards more furtile yields in Germany, China and other large counterparts. I remain highly skeptical of any sense of optimism that is founded on temporary and distorting measures (government stimulus and gaurantees are not the norm of a healthy market). However, it's not about being right when you trade but rather making money. While I believe my long-term convictions will eventually curb risk appetite and send the market plummeting; the near-term picture is offering a spark of momentum that is fully back by the speculative masses. Therefore, I will look to take advantage prevailing winds while still keeping my eye to the distant storm.

For trades, there is great opportunity with most of the majors. Early Thursday, we were met with a hold and hawkish lean from the ECB as well as a steady bearing from the Bank of England. Under normal circumstances, these developments would have been summarily ignored (perhaps we would have seen a little bit of a pop in the sterling because there was some mild speculation of an increase in the stimulus program). However, conditions are anything but normal. After the Fed's decision yesterday to leverage itself in the market, the holds from these other policy makers left the euro and pound looking very good. Both EURUSD and GBPUSD benefited from this sentiment; and each looks appealing for follow through after a pullback for good entry. Yet, the GBPUSD still looks to be exposed to fundamentals next week. Instead, I am looking for a reduced EURUSD long on a retracement back to 1.41 with a stop and first target set at 140 points. Another interesting dollar-based major is USDCAD. The dollar is suffering here as well; but the pair has yet to actually break suppport in a long-term rising trend. Therefore, I am waiting with an entry on a close below 0.9950.

My only live exposure right now is a very, reduced long USDJPY position from 80.70. I'm going to follow the dominant risk trends in the market; but the Japanese yen certainly does not offer a meaningful return or safe haven alternative to the US dollar. I think the fundamentals are simply growing too overwhelming for the Japanese currency to maintain its surge. With the BoJ decision scheduled for release soon; we could see progress on this relatively soon. And speaking of the yen, I think there is a greater opportunity to see the relatively strong EUR to extend its bullish break of a long-term EURJPY descending trendline. I am looking for a pull back to 113.80 as entry. Also, I am waiting to see whether the central bank's decision could drive CADJPY to a breakout from its long-term wedge pattern (now between 80.75 and 78.60). I'll be looking for an upside breakout as the most probable outcome.