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A Temporary Break from Volatility offers Interim Retracements

A Temporary Break from Volatility offers Interim Retracements

2010-05-21 15:46:00
John Kicklighter, Chief Currency Strategist
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It was a busy week where speculative momentum outpaced fundamental activity. Now, winding into the closing hours of the day and week, we see the aggressive deleveraging effort has tapered off and speculative bears are starting to take profits. Does this mean the market has found a lasting level of equilibrium? Unlikely. We have likely come to a correction or temporary pause point that is common within larger trends. Looking ahead to next week, there is plenty of scheduled event risk; but I won't be looking to this round of data to do more than generate short-term volatility. For direction; I will stay tuned into underlying risk appetite currents. This is where currencies, equities, commodities and fixed income have all found their stride recently; and it is a high probability that the same catalyst will pick up where it left off when another week of liquidity stands in front of the speculative masses. As for my positions, the bounce in risk appetite has pushed my technical barriers on my euro-based pairs. My EURGBP short would hit it stop (which was still in the money given the trailed stop). And, while my EURNZD setup didn't hit its stop on the short-lived push above a Fib / medium-term trendline / and 50-day SMA; I quickly took the position off after it found its way back into the money because the technical picture was distorted. My longer-term AUDCAD and AUDCHF shorts are still on the books. Having already taken profit on the first half and trailed the stop on the remaining position for each, I'm prepared to these pairs show their potential. Always ready to move on to the next trade, my sights are still set on EURUSD. A more aggressive recovery is very probable; but it would not match up to my fundamental outlook for the euro. Therefore, I maintain my interest in the break of the historic 50 percent Fib at 1.2125. Two other pairs I'm interest in are AUDJPY and CADJPY. The Aussie-based pair is coming back up to former support / new resistance at 76.50. For CADJPY, its prominent rising trendline of support has not yet given way. These could be offsetting exposures to risk appetite; or one may simply turn out to be more appealing than the other. We'll have to wait until next week to see.

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