EURJPY Reversal or Breakout Rides on Conviction in Sentiment Trends

We are still awaiting larger fundamental themes to gain traction. A clear bearing on risk appetite trends, the return to reality as to what Greece's troubles mean for the euro or speculation surrounding what the end of QE2 will mean for the dollar are all prominent catalysts. However, until the market is willing to acknowledge this influence these concerns have over the market; a cautious appetite for yield will keep the markets quietly holding onto those assets that provide better return. Yet, for those that are long yield and therefore long risk - be cautious. Should sentiment change, it could leverage a dramatic response from the FX and capital markets. This is a distinct scenario that should be considered to avoid risk; but it is also a tremendous source for trading opportunity.

...

As we await risk trends or the QE2 expiration initiatives to kick in, we are seeing technical levels warped and correlations breaking down. One pair that continues to frustrate me for its deviation from rate potential, growth outlook and risk trends is AUDNZD. My long from 1.3125 hit its stop early Tuesday (at 1.3025) with the retracement after the RBA's rate decision. The meeting wasn't notably dovish; but the fundamental headwinds in the confluence at 1.3180 proved a good place for longs to take some profit. I'll consider jumping back in with a break above 1.3180.

...

My NZDUSD short is still in place from 0.8170; but it is struggling to win follow through. Should the S&P 500 start to build a head of momentum on its break of its nine-month rising trend, then this pair will most likely reply with a selloff itself. I'm looking to potentially add if we get a close below 0.81. New to the book today is a small short on EURJPY from 117.60 (stop at 118.50 and first target at 116.50). I'm not going to build this to real size unless risk appetite tumbles or the euro is hammered across the board. If larger trends don't step in, this pair could also be good for the euro continuing higher under its own momentum. A clear break of 118.10 would look good for a significant size long given the positive yield implications.

...

There are a number of euro-pair opportunities. I think the EURUSD advance is taxed and the rising channel is very clear (and thereby easy to break). I'll look for a 1.4550 break as a possible signal; but more important here is the fundamentals. EURCAD could be a good break above a triple top at 14335 or reversal (break would carry further here) while the EURGBP is facing a notable pivot level at 0.8935.

...

Also, I'm still watching the franc pairs very closely. The CHFJPY congestion offers the best starting point for a reversal with a break below support at 95.40 (I have an entry order in). AUDCHF as an advance is best positioned for its yeild potential and recent reversal - here I think the 0.90 level is important. USDCHF, GBPCHF and EURCHF are all attractive; but fundamentals will need to place more of a role.