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Momentum Behind Risk Averison Trend Never Took Root, EURUSD Run May Reverse

Momentum Behind Risk Averison Trend Never Took Root, EURUSD Run May Reverse

2011-05-11 02:51:00
John Kicklighter, Chief Currency Strategist

Through the end of last week it seemed like we had numerous trade opportunities available. Many pairs were either on the verge of significant technical moves or were already taking steps to play through the patterns. More importantly, it seemed we had a meaningful fundamental catalyst to put the market's in motion. However, that driver does not have broad reach nor does it have the kind of influence needed to span the entire FX market - a prerequisite for a serious trend in these markets. The drop in yield expectations and regional threat from Greece seemed to have already run their course. Without a renewed case of concern for the euro, a rebound may be in order.


For the euro pairs, the implications are clear. The EURUSD drop could see a correction. It wouldn't be worth holding a short that was meant to play out on a quickly developing bear trend through congestion and a potential revival of trend; so another trailing of the stop down to 1.4525 makes sense to lock it in. Alternatively, EURCAD is still open to that reversal from its channel bottom; but the pair has yet to make that progress as the euro has more-or-less stalled while risk trends are still edging higher. In the meantime, perhaps the most tuned pair to the euro-fear / risk trend dynamic is EURJPY. The pair has tentatively bounced off its long-term former zone resistance at 115 and may look to keep th elevel as permanent support. This is one to watch. EURCHF is less attractive as a trend pair as the two franc and euro are too entertwined. EURGBP can experience a bout of high volatility through the coming 12 hours with the UK event risk which could offer a rebuff of resistance at 0.8850 or perhaps a straight-through tumble below 0.8725.


The BoE Quarterly Inflation report is a prominent, potential catalyst. This will off the same drive that the ECB and Fed press conferences offered their respective currencies. I expect volatility; but direction is up in the air. Modest disappointment for rate expectations is already an established trend. Therefore, the more influential outcome would be fore a bullish reaction. I've taken a reduced-size GBPCAD long on a well-established channel despite this risk. A 1.5650 entry with 75-pip stop and 100-pip first target don't allow for much leeway on dramatic price action. Other sterling pairs are opportunities - like GBPCHF finally overtaking 1.4400 in a larger reversal. However, pairs like GBPUSD may need a little more influence for a notable trend than this data can perhaps deliver.

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