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Weighing the Trading Options for Next Week

Weighing the Trading Options for Next Week

John Kicklighter, Chief Strategist

A pick up in volatility has gotten my hopes up, but I won't place new trades until there is definitive evidence that setups are playing out. We have been in this position before where high potential (though low probability) scenarios are teased with a pick up in volatility only to have the opportunities squashed by complacency. I cannot become complacent to great opportunties, but it is equally prudent not to jump in until confirmation is given.

Amongst the opportunities, I'm following; EURUSD is my favorite from a fundamental and technical perspective. The two year build up for the pair was founded on improved balance sheet conditions and rising European rates, but that ship has come and gone. The ECB has made known its understanding that a high euro is contributing to deflation. I will look for their effort or risk aversion to drive the pair below 1.3500.

There are other Euro-based pairs that have great potential in this scenario as well - the trouble is finding those with the greatest premium and additional lines of fundametnal support to the dominant theme. EURAUD break below 1.4350 speaks to the unappreciated Aussie carry postion, and EURJPY breaking 137.50 should equities drop carries a clear risk element.

Risk bearings carry the greatest potential and I will look to volatility to mark its bearings. Should fear rise, I will also look to USDJPY below 100.50/00 as a clearly defined technical opportunity with heavy fundamental implications.

One other pair that stands out to me is GBPUSD. Not particularly bold for its risk profile, this pair will instead tap into the heavy interest rate fodder from the UK and US in the first half of the week. Given the exceptional speculation of BoE hikes and underappreciated view of Fed tightening, I would prefer a break below 1.7050.

As fro my existing trades, I'm still holding my 'Favorite Trades of 2014' AUDNZD and USDCHF positions. The latter is for most intents and purposes a mirror of EURUSD with the addition of SNB intervention. AUDNZD is much like GBPUSD with different currencies.

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