We were talking about the risk appetite running out of steam sometime this week; but I didn't expect it to happen the day after the big liquidity-return surge. This back-and-forth in price action reflect the fundamentals well. To maintain a steady build in risk appetite given the headwinds of US stimulus expiration, the European funding crisis and Japan's financial straits amongst other considerations would take the cummulative belief of the crowd. Mustering that level of confidence is difficult when markets aren't providing new highs to reassure investors that they can make further gains. Instead, we have big clouds looming over us. That said, I am not simply going to jump into a round of risk-aversion positions. Just like the build in speculative positions, the unwinding of these trades and a short take on the markets requires conviction. The market's hesitation so far to retrace just requires patience. It is highly likely we could get another push higher before an eventual, longer-term pullback; so it is better to play what is in front of us. Furthermore, the countdown to NFPs will be distorting price action on any trades that we would expect to be held over anything longer than an intraday basis.
...
As for the most enticing setups, the second half of the GBPCAD short is still on; but momentum is questionable. It is all about the Canadian dollar here and risk appetite would do more to help - but sentiment trends don't carry too much influence here. Looking around for other opportunities, I like the short-term / highly-reactive pairs. If we are going to see a pre-NFP correction that goes beyond the equities retracement, then I think AUDUSD and NZDUSD have room to play catch up. Having held up its channel on a daily chart, AUDUSD looks like it is ready to extend is 1.0715 break to take out 1.0650 as well. A similar situation is seen with flagging momentum on NZDUSD and the 0.8185/200 pivot. If we want an offset for these dollar-long setups, there is always USDCAD as it stalls at its its previous support and holds it as new resistance at 0.9750. Once again, this pair needs to be played with realistic expectations on follow through.
...
There are a few other opportunities that are a little more tuned into risk appetite aversion - which could be difficult to rouse given the floor that we have under critical benchmarks like the S&P 500. If this equity index doesn't lead the way for a sentiment correction, CADJPY and AUDJPY may struggle for serious follow through on their own trends. Nonetheless, I like the technical picture of AUDJPY reversing below 85.50/00 and CADJPY below 82.50 (though this particular pair could also provide a bullish break of 84.50.
...
Other setups like the EURUSD reversing below 1.40 or GBPUSD collapsing its channel floor around 1.61 will take time and a trip to reach; so those are on the backburner for now.
DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.
Learn forex trading with a free practice account and trading charts from FXCM.
