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A Slow Start to a Potentially Trend-Defining Week for FX Trading

A Slow Start to a Potentially Trend-Defining Week for FX Trading

2010-05-31 18:21:00
John Kicklighter, Chief Currency Strategist
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Well, there were two ways this week could have started. The low liquidity could have translated into high level volatility with short bursts of price action or the lack of participation could have fully discouraged those still in the markets from attempting any ill-fated drives. Oddly enough, despite the high level of volatility we had seen last week, Monday's US and UK holidays would translate into a relatively mute trading day. There were certain top performers for the day, certainly; but the high level event risk would not leverage much in the way of price action. With a unique opportunity to reevaluate a busy week ahead of me while there is some level of market depth; I am taking this opportunity to look over my current exposure. From my current positions, my exposure to risk appetite is relatively balanced, potions size is reasonable and I have my eye on possible setups that could catch under different fundamental developments as the week wears on. I like where I am at and await the return of volatility alongside liquidity. Carrying over my positions from last week, the most stable holding in the mix is perhaps EURGBP. Though I am short and facing significant resistance once again at 0.8400/45; it is only half size (having taking profit on the first target) and I am well in the money. The European Union's deficit troubles will be a long-term weigh on the shared currency; but even in the absence of a financial crisis, the outlook for growth and interest rates is simply too weak to support such a significant premium over the British pound. I will add on this short with a break of 0.84 or another retracement to resistance (though my stop is set closer than that to take modest profits on my existing short. In the event that risk appetite picks up going forward, my USDCAD short looks well positioned. Already in the money and having hit my first target, the Canadian dollar stands at the top of the risk spectrum with the fastest pace of growth in over a decade and a high probability for a the first of a series of rate hikes from the BoC tomorrow. Alternatively, should risk aversion pick up momentum once again, my short AUDJPY and NZDJPY (on reduced position size for each which together totals a standard trade) gives me a strong technical jumping point. All in all, I am ready for the week to begin in earnest and waiting for new trades to take shape

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