If the S&P 500 accelerated its mild correction into a serious reversal; there would be an incredible range of trading opportunities open to us. It isn't just the dollar and yen-based crosses that hold a remarkable correlation to underlying investor sentiment - but these pairs specifically have an exceptional relationship. Look at these pairs. EURUSD, AUDUSD, NZDUSD, GBPJPY, AUDJPY. All have seen incredible runs in just these past few weeks; and a few are near multi-year or record highs. In otherwords, the are ripe for a reversal. This doesn't have to be a critical, fundamental reversal in underlying sentiment which generates a new meaningful trend (though that would remarkable). A natural correction to the rally that has gotten us to this point would be sufficient to trip meaningful technical setups and give us great trade opportunities. That said, a tentative yen advance has pushed my USDJPY back to my trailed stop at 84.25 and booked 180 pips on the second half of the position. I'd like it long again around 83 dependent upon risk trends and momentm.
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In the meantime, there is a different risk scenario setting up. In effect, I'm looking at the potential of many pairs to fall into meaningful retracements. Having already dropped back below 138 support, I have jumped into a small size GBPJPY short from 137.50 and set a 115 pip stop and first target for now. A pullback and hold at 138 could actually encourage me to build the position up a little and lift my average entry and stop a little higher. This is my second sterling pair (the EURGBP short barely averted hitting its stop at 0.8860 - and could still do so early this morning) - but there are better opportunities to look at from the risk spective.
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From the dollar-based pairs, I think NZDUSD is the best setup out there given its extremely, even mechanical rally over this past week is staring down resistance around 0.7825. Should this pair see a close to break this channel (0.7750/00) and the risk benchmark (S&P 500) falters, I'd like a short here for a few hundred pips. Along similar lines, the GBPUSD short setup I laid out recently is playing out very well from that channel top around 1.64; but I held off too long and missed a good entry. EURUSD and AUDUSD are still good potentials; but I'll need to see that risk reversal to supplement critical channel breaks - 1.4250 and 1.0400 respectively.
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As for the other setups, all the yen crosses show some level of opportunity; but perhaps only AUDJPY competes with GBPJPY from that 88.70 reversal and then down on to 87.70. Outside of the purely risk play, EURCHF is more about the problems in Europe and looks good should 1.3050 support give. Then there is EURNZD which is a combination of risk aversion and rate expectations, which would support a long above 1.8550.
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