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Waiting for Bigger Moves from EURUSD, GBPJPY and AUDUSD

Waiting for Bigger Moves from EURUSD, GBPJPY and AUDUSD

2011-05-24 20:08:00
John Kicklighter, Chief Currency Strategist
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The new trading week certainly opened with a bang; but a burst of activity doesn't gaurantee new positions. In fact, many of the best looking setups are still tentative after the big shakeup we had through Monday's session. Considering there are many pairs lining up for the same fundamental breakout - we need a meaningful catalyst to usher a market-wide shift. Otherwise, individual efforts will likely dry up too quickly and even a shared effort could quickly run out of momentum without meaningful encouragement to feed the fire. Looking for a source of mass selling or buying; we come up relatively short. The European financial troubles are certainly a constant threat; but this has proven an unperforming issue for too long now. So, I wait for genuine confirmation.

...

In looking for setups in current market conditions, I'm seeing technical's supporting the same theme: remarkable opportunity should there be a broad shift towards risk aversion. However, if I prepare for only one scenario; then I will be left empty handed if the alternative reality takes over or there is no change in activity at all. Therefore, my first thought is to lay out trading opportunities that run counter to my prevailing bias. First, what setups look good should risk trends remain choppy? There are a number of range opportunities that can prove alternatives to the breakout opportunities we see. EURUSD bouncing further toward 1.4350, GBPUSD closing on 1.6315 and AUDUSD moving up to 1.0650 are all opportunities that seem reasonable with today's week draft. However, we need to take it a step further and look for those pairs that are best situated to avoid errant swells in sentiment. On this front, AUDNZD looks a very good setup having dropped sharply for three days to 1.32 where a Fib confluence, long-term pivot and rising trendline reside. Fundamentally, the kiwi doesn't really carry the necessary weight to sustain such a run. Another attractive setup for congestion is GBPCAD which has traded in a choppy range for weeks. Oscillating from 1.5865 to 1.5625, a generous stop should do well here.

...

Now, for the more dramatic outcomes. If we are looking for risk-positive setups (against my current bias); we will need to maintain more reserved targets. Here, I think the GBPUSD reversal from 1.61 is perhaps one of the best technical and fundamental combinations. CADJPY breaking its wedge above 85 and GBPJPY driving above 133 are two other alternatives. For a strong move towards risk aversion (accompanied or guided by a drop in the S&P 500 to and below 1,300) would offer a great condition for EURUSD short below 1.40, AUDUSD below 1.05, EURCAD dropping below 1.3625 and perhaps even a slow rise from USDCAD above 0.98. A risk positive move that is less dependent on actual high-level appetite shifts: EURGBP should it drop below its frequented 0.8665 pivot.

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