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A More Complicated Week Ahead

A More Complicated Week Ahead

John Kicklighter, Chief Strategist

The past three weeks have been difficult for my type of trading approah. I prefer medium-term swings (moves that can last from multiple days to multiple weeks) so that I only have to take a fraction of the move (removing the necessity of picking absolute tops and bottoms and increasing the probability that I can make a return without it having to come within a single move). That is not what were working with in August. The withdrawal of speculative participants has severely curbed activity leaving us with chop, false starts and an annoying drift of risk appetite.

Nevertheless, there are different strategies that can be employed, and that was the pace I was taking this past week (kept up to date in the Real Time News Feed). The quick USDJPY short within its general range (79.65 - 78.00) during the Fed was meant to be quick, fall within definable ranges, work with the knowledge that a major trend wasn't necessary and that there would be a brief influx of volatility for this non-risk based pair. The GBPCAD long looked like a breakout on the shorter-term charts (and it was), but on the larger scale it moving back within a larger range. Furthermore, the pair was not risk dependent. Again, a pair that can move outside the drudgery of pure sentiment. I took the second half of the position off today at 1.5700 (+130).

Congestion and short-run moves are best for the market conditions we have been saddled with. Now, going forward, the situation looks to be even more complicated. We are potentially in a transitional period. Volatility has picked back up (a sign of speculators returning) and rumor mongering about stimulus programs is showing more influence. That said, the major fundamental events are within view. The Jackson Hole Economic Symposium will start things off Friday/Saturday, but the bigger waves will be the following week's ECB rate decision and more importantly the Fed, G20, EU Summit the the week after that.

We may have choppy trading ahead. It is difficult to pick the right trading approach under these circumstances. However, I still prefer congestion-based pairs. I like USDJPY for swings move within its 79.50 - 78.00 range - and even a bullish break. Even EURUSD is a range worthy pair - though it will be volatile and more susceptible to event risk. I would also consider another GBPCAD long position on a deep enough pullback (in a larger range but notably further from risk trends). Another non-risk trade that I am carry forward is my short AUDNZD from 1.2900 (stop trailed to breakeven) and first target at 1.28. I also have a USDCAD which is a lesser risk-based pair (from 0.9925, stop 0.9875), but perhaps the most biased.

And, being a man of options, I want to have setups that take advantage of any unexpected swells in volatiltiy with clear intentions (a rebound in activity means more volatility and volatility now would most likely mean risk). As such, I'll be watch AUDUSD closely as it made a channel break and rose to test former support at 1.0425. We have a similar pattern with AUDJPY without the complication of dollar stimulus questions. NZDUSD, NZDJPY and CADJPY all offer similar (read: highly correlated) options.

**I will be out of the office over the coming week and won't be able to check my trades very often. That is something that I will certainly take into account when I make my trades (no short-term trades that require my constant monitoring).

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