What an unusual day. Risk appetite was under clear pressure Thursday morning; and the capital markets were responding in kind. The Dow and S&P 500 furthered significant medium-term bearish breakouts, commodities were tumbling and bond yields fell off. And yet, EURUSD rallied on the day. In fact, the euro advanced across the board and the US dollar would stumble against most of its crosses. This is an unusual development given the greenback is the undisputed safe haven currency while the euro is heavily dependent on general investor confidence as it is suffering from a financial seizure that threatens a full-blown financial crisis. This divergence comes on part of the euro itself. The currency responded this morning to Spain's 'successful' bond auction whereby the government sale of 3.5 billion euros worth of five year notes received a 1.7 bid-to-cover. This helped stabilize confidence; but in reality, demand was rather weak; and there are bigger problems than just Spain. Another issue to arise during the day was a six-day lending facility, used to fill in the liquidity gap with the 12-month unlimited facilities expiry. This short-term liquidity infusion amounted to 112 billion euros. This is a sizable sum and add significantly to yesterday's 132 billion euro draw for three-month coverage. Overall, conditions are still poor for the region. And, given the euro's temporary strength, the primary exchange rate (EURUSD) would lead to a wide selling of dollars. This situation won't last for long as tomorrow's NFPs could set both currencies back in the risk appetite track.
As for my positions, today's volatility certainly changed things around. My EURGBP short was pressured and we are above my second entry level. Having added at 0.82, that half of the position is in the red; but my initial holding is still well in the money. If I am stopped out at trailing stop level, I'll still end with a net profit. With risk aversion, my AUDCHF continues its decline and so does USDCHF. With the latter pair, I have decided to take profit at the combination of a 200-day SMA and 61.8 percent Fib. One true underperformer is USDJPY. This has dropped below a range support level; but given my small position size, I will stick with it and add as it continues lower because I like the long-term outlook.
For potential trades, both GBPNZD and EURCAD have broken their long-term descending trendlines. The former is far more attractive from a fundamental perspective; but I need a pull back for a better price. EURCAD is more questionable for fundamentals; so I have to approach it with a smaller position size and with good management. For pure breakout opportunity, CADJPY is still looking good. If I want a breakout with better follow through though, it is AUDNZD that draws my attention.