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The Trading Opportunities are Mouth Watering

The Trading Opportunities are Mouth Watering

John Kicklighter, Chief Strategist

The markets are dripping with potential. However, there is a mixture of confirmation and being late to the game that I have to balance. In looking at the Dow Jones FXCM Dollar Index setting a close at its highest level since January 2011 and tentatively breaking a long-term resistance as well as the S&P 500's drop below multi-month 1340 support, we are looking at multiple levels of confirmation for a market-wide shift. This could be the true sign of a market-wide risk aversion move that is long overdue, but jumping in with medium-term conviction requires certainty and picking the right trades for this theme (those that aren't already deep into the trend).

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For myself, I'm still cautious about the implications of the USDollar and S&P 500 break. A break and a break with follow through are two different things - and the latter is needed for trend. My uncertainty lead me to book my EURUSD short from 1.2940, but I would be interested in getting short again if we can break the January low (with a real fundamental push) or find a better price on a bounce (provided resistance is backed by another fundamental push).

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I still have short risk and long dollar interest on however. With AUDUSD's break below parity and thereby a multi-year rising trendline in the area, there is a very big technical shift. I took a much smaller position there with a wider stop, but follow through is still uncertainty - I'll be looking for equities to add momentum to their decline.

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Other dollar-based majors can rouse my interest soon. GBPUSD dropped below 1.6000, but I think the sterling's own BoE Quarterly Inflation report can decide where this pair goes and how quickly (the same for GBPJPY which is stuck within a wedge from 2/23, ignoring the progress its fellow yen crosses are making). Speaking of the yen, USDJPY is moving above channel resistance, but follow through here absolutely depends on leveraging the liquidity theme.

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There are a number of fundamental ambiguous pairs that have my interest as well (those pairs where the view isn't as clear still have significant repricing potential). I didn't short EURCAD on the break because we just came through the euro data and it could bounce - and a strong risk aversion move could disrupt the CAD's run. If the euro stabilizes and risk trends continue to fall apart, I like EURAUD and EURNZD on breaks of above their respective congestion resistance.

DailyFX provides forex news and technical analysis on the trends that influence the global currency markets.

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