A Short-Term Fade on GBPUSD May Satisfy Trading Conditions

Trading conditions are still exceptionally thin; and we need to trade according to what the market is capable of providing us (read high volatility and unstable trends). We are looking at another distinct price development on the day - and this time it is a concerted effort to sell the US dollar. Yet, in this push, there is not a significant movement in risk appetite trends; and interestingly enough, there has been a strong bid for US Treasuries through the morning. Given the incredible pressure behind this move, the generally quiet trading conditions and the lack of a true fundamental driver; I am jumping on a half-size GBPUSD short from 1.55 with a stop and first target equal to 75 points. This is a reasonable target given the preceding momentum; and the fact that it falls well within the range while fundamental trends are failing to produce the necessary follow through improves the probabilities of the setup in my book.

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The only other active position on my book is the long USDJPY. Having trimmed this down to a very small size yesterday with the close below the 50-day SMA, I'm once again confident in letting this take its time to work out the underlying fundamentals that can be disrupted from time to time as risk trends fluctuate and the market adjusts to changes in stimulus along with economic developments. As for the pending list, there are few short-term setups that would really fulfill the necessary requirements of nearby target, a quick return and encouraging enough probabilities in these unusual markets to make them good setups. Another fade potential is NZDUSD as it approaches the 50 percent Fib of its last bear wave which coincides with a previous swing high around 0.7665. The momentum and anti-fundamental factor here are the same as with GBPUSD; so I don't want to double up. Perhaps my favorite, coil spring at this point is GBPJPY. That descending trend channel over the past two weeks has left us with a lot of pent up energy for a possible reversal.

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A lot of other opportunities exist out there; but they may struggle to play out given the market's constraints. Perhaps if they are still around when speculative liquidity fills back out, we can have great trades on our hands. Particularly interesting today is the AUDUSD potential double top which hit the exact swing high set a month ago. AUDCAD is favored for its better fundamental view; but here again too, we wait for conviction on the double top. USDCHF can produce a near-term breakout; but we wait for something to really drive it. USDCAD is anchored to parity and looking for direction from either a break or reversal. EURUSD is one to keep our eyes on given its fundamental backlog. And if we were looking to those pairs with great potential for both trend and a reasonable expectation for accelerating volatility, AUDJPY should be a key one to watch with its ATR at January 2007 lows.