Volatility to Start the Week is Uneven and Potentially a False Signal

As was expected, the return of US speculative liquidity would lead to a general increase in trading ranges for the FX market. However, it is interesting to note that volume on the equity indexes, currency futures and other market benchmarks showed activity was still rather restrained. That suggests that the strong move that we opened the active week with on Tuesday could come up short for follow through. That means, the rally from the S&P 500, euro and kiwi dollar should be second guessed. Since I am already skeptical on all three, that doesn't fall far from my bias. Of course, that doesn't necessarily translate into something to actually trade until the market shows it has come to the same conclusion.

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For positioning, this is sidelining me from taking many setups. It is worth being patient to jump on meaningful trends that can offer greater trading potential than just an intraday correction. In that category, I'm filling the potential EURUSD reversal below 1.40, AUDUSD offer a true reversal below 1.0450 and NZDUSD turning from record highs among others. These have great potential to generate meaningful follow through; but such situation requires patience, so I wait.

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In the meantime, my only activity over the past two days is with a couple of Canadian dollar based pairs. We were talking about the short-term correction potential for USDCAD below 0.9750 Monday on the Real Time News feed; and that is what we saw Tuesday. Given this pair's history with congestion, a 50-75 point run is good enough for such a short-term performance; so tapping out with thatreturn is reasonable. The same consideration with the GBPCAD short I carried over from last week. With the entry at 1.6035 and an initial stop 150 points away, the target was initially set equal to risk. However, given the aggressive nature of its tumble; the 100-125 points it has advanced beyond its entry point is reanable enough for a first target. Trailing up the stop and keeping the second target well above 1.56 is reasonable.

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For short-term opportunities, I'm looking at the Aussie pairs specifically. The upcoming GDP figures can stir volatility and there are pairs that look good for either a bullish or bearish scenario. With risk appetite up and AUDJPY already forcing a bullish break from its terminal wedge, it looks well positioned for a positive outcome and a run above 87.50. For a disappointing outcome, AUDUSD didn't drift higher with today's bullish risk trends; so I'll start there should the pair pullback from 1.0715.