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A Lot of Volatility for the Majors and Crosses but No Clear Trends Just Yet

A Lot of Volatility for the Majors and Crosses but No Clear Trends Just Yet

2010-05-26 14:47:00
John Kicklighter, Chief Currency Strategist
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The past 48 hours of market activity has brought a few rounds of volatility for the market's; but through it all, we are still wanting for a clear direction. Surely, there was a direction in Tuesday morning's tumble and the subsequent reversal that has continued through this morning. However, given the divergence between individual currencies, pairs and asset classes; there is little conviction and follow through on investor sentiment at this point. In this lull, some of my existing positions are starting to give back some of their gains while new short-term opportunities are starting to present themselves. Through this period of congestion though, I need to maintain an objective and bias on the broader market. I believe this congestion could last for some time; but if it does, precise technical levels will not likely hold up well. On the other hand, conditions are still very fragile; and should things start moving again, developments would likely be far more aggressive in a sell off. Therefore, I will work with the recent pause in trend while maintaining my positioning and sensitivity to further risk aversion. First and foremost, the tempering of risk aversion moves recently has deflated my AUDCAD and AUDCHF short positions. After adding to my AUDCHF short near its former channel bottom, we are seeing it push slowly back into that channel. This is eating the profit I had on the half of my original short; but the initial entry makes for a higher average entry that can absorb further retracement. I'm still only in a half size position on AUDCAD (having taking profit on the first half a while ago). I have move my stop up to 0.8925 to further secure profit; and I would certainly jump back in to the short side if it popped back up. In today's general rise in risk appetite, the euro has continued to depreciate (showing the true lack of sentiment behind this rise in risk). My EURGBP short has benefited for it such that we are once again nearly the broad range low of 0.8425 that stands as my hurdle to a larger bear trend. The drop in the euro has also curbed my short-term EURUSD long taken yesterday. Developed on the expectation of a relief rally and the break of a short-term (pulled up on the 15-minute chart) trendline; I was able to hit the first target of 65 points while the second half would be knocked out at breakeven. A new position this morning is a small size, short USDCAD based on a similar short-term trend push and potential relief reversal. Other pairs I am watching closely: AUDJPY for a retest of former range support at 76.50/00; CADJPY test of a strong rising trendline near 82.50 (which I missed yesterday); the long-term 50 percent EURUSD fib at 1.2135; and a break of GBPUSD congestion between 1.4500 / 1.4250.

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