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Another Swing in Sentiment Covers for the Reality of Congestion

Another Swing in Sentiment Covers for the Reality of Congestion

2010-05-27 15:05:00
John Kicklighter, Chief Currency Strategist
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The surge in volatility this week has held. However, there are two things to note about this market activity. First, all of the day's action happens either in the opening European hours or the first hour of US exchange trade. That confines the day's movement to a very small period. The second - and more important - consideration is that this high volatility has not developed into a trend. In fact, most risk-sensitive currency pairs have established broad ranges through this past week. It is important to not be jaded by this price action and see the market for what it really is. Range based opportunities are typically best for the congestion that we have seen; but the high-level volatility means that it is far easier to force a breakout and maintain for consistent direction. This would require an aligning of speculative interests across the asset classes and a fundamental stabilizer to give the masses a common goal. Is there something like that on the docket? Next week we have interest rate decisions and the NFPs; but the market will either make its move or given up on volatility before then. Instead, we will have to keep our eyes on the headlines and look for unexpected events and news. As for my positioning in this chop, I have cut out of some positions, taken some profit and added new exposure. The second half of the AUDCHF setup that I had been holding for some time now was knocked out for a modest profit (I had added to the short at former channel support and thereby lowered my entry level). At the same time, I took half profit on my EURGBP short as the pair once again tests and holds at 0.8435 range support. A break form this broad congestion band is long overdue. My AUDCAD has advanced as the Aussie dollar appreciates; but it has yet to breach 0.89 (which I have placed my stop just above). I am well in the money on this pair. USDCAD is a hold over from yesterday; and the short-term setup has certainly put in for better momentum today. I have taken profit on half of the position and letting the remainder ride with a stop moved up to break even. New to the mix this morning is a AUDJPY short. Having risen to test the former range support at 76.50/80, we have seen the morning burst curbed just as a potential new resistance. Also, NZDUSD's morning rally has pushed well beyond the average true range for the past 20 days. Having made its morning move, the pair is now stationed at a notable pivot at 0.6820/00. I have taken a small short position with a 30 point stop. A broad mix; but exposure is pretty uniform in its risk-aversion lean, so I have to be vigilant.

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