Congestion is setting in for the majors and many other highly liquid currency pairs. This is an unusual turn of events considering equities and commodities have rallied so astutely the past few weeks. Normally, I would say that this imbalance between markets is unsustainable; but recent history has proven that these market's can part ways for some time. Nonetheless, I believe bigger fundamental themes are bound to reengage and technical patterns call for breakouts. In addition to the ongoing Greek situation (which I believe anyone who ignores it does so at their own risk), global financail markets have to further interpret the risk associated to China's announcing it would nullify local government loan gaurantees and Dubai World's postponement of another debt payment. The markets are clearly not as stable as current valuations would suggest. This would be an assumable risk if only the expectations for return would match. However, they do not.
For positions, I am still holding my USDJPY long position and have trailed the stop. It is reduced sized; but a notable pull back or clear break of 92 could encourage me to build it further. Until it breaches 92, the pair is still within the current of a bear wave. Nonetheless, it is best to build the position at attractive levels on the potential of a long-term, fundamentally-derived reversal. This past week, the benchmark, three-month US Libor rate finally advanced beyond its Japanese counterpart. This is not an insignificant event as it strips the dollar of much of its funding appeal if there is a cheaper and more stable alternative in the Japanese yen. Scanning the rest of the market, there is fundamental and technical trade potential in many pairs; but most can be put on hold until something meaningful happens. I will watch EURUSD and USDCAD particularly closely. A short-term bullish break on the former above 1.3750 would offer a good short-term, counter-trend trade. For USDCAD, 1.02 is a clear range support that can provide a break or range reversal. I would only play the latter scenario because parity could step in as a quick secondary support.

Fundamentals and Technicals Point to a Termporary Equilibrium
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