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The IMF Blurs Fundamentals and the Euro Fights its Fate

The IMF Blurs Fundamentals and the Euro Fights its Fate

2010-07-08 14:58:00
John Kicklighter, Chief Currency Strategist
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We had a tremendous burst of volatility this morning that has shaken many of my pairs to life; and cut me out of a few others. This increase in activity, however, has not clarified the sense of direction. In fact, equities (as a simple benchmark for risk) suggest the rally in sentiment has stalled and is jeopardy of reversing course. At the same time, some FX pairs have rallied on risk-related paths and others tumbled as if fear is prevalent. I think the underlying position of the markets is chop and uncertainty; and a few key fundamental updates have sparked unusual price action for specific currencies. Top among these headlines is the news that the IMF has increased its growth forecast for the world; but there have been damaging comments made against the future of the dollar, euro and pound. This creates an unusual mix of price action where the general pace of congestion over the past week is fortified. It just happens then that I am better positioning myself for being absent for the final 24 hours of this trading week. For my active positions, I have seen another pound trade stopped out. GBPNZD extended its reversal last week and has undermined the bullish breakout opportunity that we had on a long-term trendline break. I still like this pair fundamentally; but I'll have to wait until something better develops for price. Since I hadn't reached my first target, this is a complete loss. At the same time, I have decided to cut my GBPUSD. Having already taken the first half of this position off at a profit, I decided to take a modest profit on the second half and consider jumping back in on a clear breakout from recent 1.5225 and 1.5075 congestion. I would rather it be a bearing breach because it would open the door to retracing the bullish trend of the past month. As for my AUDCHF short, the floating profit in the remaining half of my exposure is being eaten away after the strong Aussie employment reading. My stop is set at breakout; but I am still happy with the profit taken on the first half if that happens to be the net take. Finally, my USDJPY is putting up big numbers. An unusual outcome given the reserve price action elsewhere, but the technical implications are encouraging. As for potential trades, CADJPY and CHFJPY have already move sharply to the upside. I am waiting for a negative break on the former and the latter is already stretched then; so I will take these off the list for the time being. As for AUDNZD, a temporary bullish break from the descending wedge was won; but no follow through would come of it. I still like a medium-term bearing break below 1.2150; and I will wait for it. AUDCAD is a new one. Having an awkward rally today; we are closing in on the former major support at 0.92. I may build up a small short should we get there and add to it should it start to reverse.

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