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Tepid Rebounds are Not to be Trusted

Tepid Rebounds are Not to be Trusted

2014-04-10 13:00:00
John Kicklighter, Chief Strategist

EURUSD has rallied and yen crosses have jumped off of prominent bullish trendlines, but I'm not convinced. I need a level of fundamental conviction to match technical moves for me to engage in a trade, and what we have seen develop over the past 24-48 hours lacks for foundation.

With EURUSD, a move to 1.4000 is dependent on the dollar burning through an extended drop (unlikely as a retreat in rate expectations won't see rate hopes fully vanish) and/or the Euro upgrading its rally (equally dubious given the monetary policy and growth circumstances). I'd like to play a short-term correct on a lower time frame, but fundamental tides are proving too tumultuous. I may just have to wait until we move closer to 1.3900 or 1.3650.

For the yen crosses, I already hit the first target on my CADJPY short (+85) and the stop is trailed. Despite the bounce in the crosses, I still like this pair's bearings as it is a range and the Canadian dollar is unflattering; so I'll let it play out.

The core yen crosses (USDJPY, EURJPY, GBPJPY) bounced before breaking major trendlines and bullish bearings. However, there is likely little conviction in this move as we now have a tainted currency without the BoJ on the stimulus warpath and risk trends struggling to maintain the drive higher.

I would prefer trades on EURJPY breaking 140 or GBPJPY breaking 169. For USDJPY below 101, though closer, it would require both both the dollar and risk trends to move lower. That is an additional requirement that is difficult to fulfill.

In the meantime, I'm watching GBPCAD bounce between 1.8350 and 1.8200. This could play either way, but fundamentals favor an upside move while sheer position shows more open space below.

For my existing positions, the Aussie dollar gained a little traction to help out my short EURAUD and GBPAUD positions. My long-term AUDNZD is in the money but has lost bullish momentum and the long-term USDCHF long has been set back into the red with the dollar's retreat. These last two are meant to play out for a longer-period, so I am viewing them as such.

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