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Risk Trends Crater, New Trade Opportunities?

Risk Trends Crater, New Trade Opportunities?

John Kicklighter, Chief Strategist

The market's have made another push on risk trends, and there is finally a significantly level of intention behind the drive. US equity indexes collapsed through the day to new multi-month lows and the USDollar Index has finally broken above congestion with a push above 10,000. This looks serious, but we have seen similar threats before that have completely lost momentum.

In the mix of volatility this past 24 hours, there has been a significant amount of activity in my trades. Despite the risk aversion theme for the day, my AUDJPY short (from 82.85) was still stopped out a little under 60 pips as the yen plunged on the day after the announcement by Japanese Prime Minister Noda that he had set the election date. That said, a CADJPY long from 79.30 (playing the floor of a defined range) offset much of the loss with a 65 pip return (the sizing was a little different so between the two it was a net loss).

Speaking of the yen, I missed out on the opportunity to trade the EURJPY - GBPJPY relationship I have pointed out the past few days in the daily videos. That is a lesson to learn not to leave good trade setups on the table.

Elsewhere, my non-risk related AUDNZD short from 1.2785 was stopped out at its tight exit (35 pips at 1.2820). This was a small loss with position size and it was meant to be this way as I wanted it to play out quickly otherwise it would likely not play out at all. Another trade that disconnects from risk trends - I decided to take profit on my USDJPY long (Entry at 79.15 and 79.50) at 80.15. That pulled in 65 and 100 pips on the separate orders. That was my best overall trade through the booked positions.

I took profit on USDJPY after being reminded of something fundamental to trading that David remarked on in the RTN: to take profit and not to chase price. If this pair breaks above 80.65 or pulls back around 79.20, I'll go long again (fundamentals providing). Meanwhile it is important to take profit.

With the risk trend activity on the day, my NZDUSD short (entry 0.8175) is finally making a move on that channel reversal pattern it has flirted with for some time. First target is equal to risk (90 pips) and second will be defined with momentum but could be as wide as 0.7800/7750.

A new trade I have on is my long EURAUD. Given its 10-day consecutive decline through Tuesday, I set an entry order to go long at 1.2235 on a possible overnight break. It made its move and knocked me in. Stop is 1.2165, first target is equal to risk and second is open but loosely placed at 1.2600 as an optimal place-setter.

As for other opporturnities, there are plenty if risk aversion picks up steam in the FX market. I could see a AUDUSD short below 1.0365 (though I need to be careful of NZDUSD correlation), EURJPY holding 103 (if it gets there), AUDJPY short again below 83, EURUSD below 1.2700, etc. Non-risk, I have my entry order set on EURCHF to go long (I am messing around with the entry, now at 1.2007); and I'm considering AUDNZD and AUDCAD again.

--- Written by: John Kicklighter, Senior Currency Strategist for

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