The return of US liquidity wouldn't disappoint Tuesday morning. With the promise of US capital once again flowing through the system, traders would take the opportunity to bolster their risk taking well before the official US open. In fact, the European benchmark equity indexes would rally nearly three percent across the board. Clearly, there was sense of risk appetite that would boarder greed. I would attribute much of this strength to the few signs of progress in European finances. The ECB was able to more than cover its one week facility to sop up the liquidity from government bond purchases and Spain was able to auction off six billion euros in debt. Is this a sign that things are definitively turning around for Europe? Not likely. This is more than likely a lull in fear where policy officials are smartly accessing the markets to fortify the perception of demand and stability. However, the reality of the Euro-area's position cannot be ignored for long; and a rebound will not find much excess premium to work off. We have certainly seen that sentiment has already tempered. Shortly after US markets opened and rallied, they would reverse course and trade in the red briefly in the afternoon hours of the New York session.
For my positions, the impact of a rise in risk appetite had its impact. The biggest change was the fact that my EURGBP short would be knocked out at 0.810 with the break of a descending trend channel in the vicinity. The trailed stop and my higher entry on the first half of the position made it an overall profitable stop out. As for AUDCHF, my short has cooled. There is clearly short-term congestion developing; but my entry is good enough that I can wait out a possible revival on a bearish trade. For my risk positive positions, my long GBPUSD hasn't offered much in the way of progress. Best to keep the stop on my second half nearby at 1.5135. Interestingly, USDJPY has declined today even though the dollar is typically treated as the 'risk' favorable currency between USDJPY when it comes to it. This says something about the absolute nature of the dollar in reflection of this shift in risk. And, finally, GBPNZD has reversed all the way back to its breakout point on its long-term descending trendline. A hold here is important to securing hope of a follow through.
As for those pairs with potential, there are a lot of possible short-term breakouts out there. However, I'm going to stay away from them considering how choppy and divergent things are between different asset classes. The pairs that still interest me are AUDNZD, CADJPY and CHFJPY. AUDNZD has shown a strong bounce on its long-term rising trendline (neckline) and has forestalled a breakout - which I'm still interested in. CADJPY has shown a similar reversal to prevent a major shift in its technical bearings around 81.50/75. As for CHFJPY, the break of the ascending triangle formation with resistance at 82.20 has proven lackluster. I may will now only trade this should we get a good bearish reversal below 82 and with momentum.