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Posts Tagged ‘AUDJPY’

Volatility is still extraordinarily high this morning; and there were some particularly dramatic moves with a few individual currencies. To start things off this morning; we have another swing in risk appetite as can be established through equity, commodity and debt markets. However, looking at a longer time frame, we see that this is just another aggressive shift in an otherwise stable range. We are still suffering the high level of activity without a clear bearing to define the next viable trend. Currency traders are privy to the difference between a highly granular picture of the markets and that of price development over the past few weeks; and from this, we are starting to see less reaction to the rapid changes in sentiment. Most notably, the euro is seeing less and less relief with improvements in risk positioning. This suggests a greater awareness of higher time frame congestion and thereby an effort to moderate choppy price action. Yet, that does not mean there aren’t trades out there. Aside from the range potential out there, a few pairs are already developing fundamentally-derived and technically triggered trend; and we can already smell the possibility of a market-wide trend development on the winds.

When the markets are moving towards trends, I see considerable potential across the spectrum. However, at the top of my list I like a EURUSD short on a break of its historical midpoint at 1.2135; and as an alternative, USDCHF could stand as a better option for a dollar reversal – should that be the trend that emerges. Another short-term breakout setup comes from EURNZD. In a terminal wedge similar to EURUSD on the short-term charts, a break of 1.7950/75 would be the preferred outcome. As for my existing positions, a EURGBP rebound to test former support as new resistance is too be expected. Nonetheless, I am still in the money on the added portion of the position and well in the money on the original exposure. My USDCAD short didn’t hit it stop overnight; and now we are on the verge of extending the bear run below 1.0410/20. Unexpected news this morning that the Japanese Prime Minister was resigning after an unsuccessful eight-month stint at the top position has set back my AUDJPY and NZDJPY shorts which were performing well before the announcement. Ultimately, both are still bound by congestion.

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Well, that didn’t last for long – the lull in volatility that is. The holiday trading conditions fully deflated activity levels Monday and gave us reason to believe that last week’s swing-prone conditions were behind us. However, with liquidity topped off today, currencies are back to their old tricks. This morning’s activity was highlighted by a remarkable plunge in risk appetite that would briefly push EURUSD to new lows and drive the more risky currencies lower. Yet, this tumble in sentiment and the markets would prove temporary. A bullish reversal began in the European hours and would pick up steam as US exchanges and banks came online. Personally, I don’t think this sharp reversal is unusual; because sustaining this initial drive this morning would carried with it substantial consequences: mainly that EURUSD was entering into the next phase of a very large bear trend as it pushed below the 50 percent mark of its historical range. While markets are very active and fundamentals are stoking the fires, such a meaningful shift may require something more seismic and certainly more encompassing.

As for the trading this morning’s activities have offered, all of my current positions are preforming and there is good potential to be found in a few other pairs. From my current stock, the half sized EURGBP short I had has been built back up to full size with a clean break of long-term support at 0.84. This could be the defining move to really generate momentum on a bearish trend. My USDCAD short is similarly doing well this morning despite the festivities surrounding the Bank of Canada rate decision. My stop is already trailed so I am just allowing it to perform. As for AUDJPY and NZDJPY, my shorts were doing much better this morning before the reversal; but they are both still in the green and confirming their downside potential. I’m also looking for a possible long-term, confirmed break of 1.2135. This morning’s reversal is a clear sign of how important a confirmed break is. As a counterpoint to EURUSD, USDCHF has stalled at a long-term descending trendline and a potential congestion to reversal pattern may develop with a break below 1.1450.

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I wasn’t expecting much from Friday in the way of price action as we were heading into an extended holiday weekend for US and British traders. While the exchanges in New York and London were technically open, there were plenty of deep pockets that were likely absent from the pool. This left us with little liquidity and little in the way of scheduled event risk to work worth. So, it was unlikely we would see anything in the way of significant price action. In this scenario, you are likely to see a simple retrace of any significant drives from the previous 24 hours. Obviously, we had a big surge in risk appetite Thursday; so the scene was set. As for trading, this period of congestion or erratic and short-lived breakouts would offer little to trade on (for me at least). Therefore, I simply carried over my existing positions. Looking ahead to next week, the markets could start with a trickle as US and UK liquidity will be absent. However, from there, we have a torrent of scheduled event risk, a G-20 meeting and a precedence for high volatility. The probabilities of good trades developing in this mix are high.

Recapping the positions I am still sitting on. I am still short half of my original EURGBP short position (having taken the first half off for profit at around 0.8450) and well in the money. I would prefer a break of 0.8435/00 to build the position back up to full size; but a bounce back towards 0.8775/00 could encourage me to rebuild from the top of the range. My USDCAD short was originally envisaged as a short-term technical setup that was playing against momentum. Having played out well yesterday so that I could take the first target and trail the stop on the remainder, I am comfortable allowing the remaining half simply play out as there is no risk attached to it. Far more risky are my AUDJPY and NZDJPY shorts. Both are based on technical setups and a belief that risk appetite is not going to hold up. Both were established at former support levels that could act as new resistance. These pairs are volatile; so reduced position size and wide stops are essential. There are many other opportunities going forward; but I’ll talk more about those as they come closer to fruition.

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The surge in volatility this week has held. However, there are two things to note about this market activity. First, all of the day’s action happens either in the opening European hours or the first hour of US exchange trade. That confines the day’s movement to a very small period. The second – and more important – consideration is that this high volatility has not developed into a trend. In fact, most risk-sensitive currency pairs have established broad ranges through this past week. It is important to not be jaded by this price action and see the market for what it really is. Range based opportunities are typically best for the congestion that we have seen; but the high-level volatility means that it is far easier to force a breakout and maintain for consistent direction. This would require an aligning of speculative interests across the asset classes and a fundamental stabilizer to give the masses a common goal. Is there something like that on the docket? Next week we have interest rate decisions and the NFPs; but the market will either make its move or given up on volatility before then. Instead, we will have to keep our eyes on the headlines and look for unexpected events and news.

As for my positioning in this chop, I have cut out of some positions, taken some profit and added new exposure. The second half of the AUDCHF setup that I had been holding for some time now was knocked out for a modest profit (I had added to the short at former channel support and thereby lowered my entry level). At the same time, I took half profit on my EURGBP short as the pair once again tests and holds at 0.8435 range support. A break form this broad congestion band is long overdue. My AUDCAD has advanced as the Aussie dollar appreciates; but it has yet to breach 0.89 (which I have placed my stop just above). I am well in the money on this pair. USDCAD is a hold over from yesterday; and the short-term setup has certainly put in for better momentum today. I have taken profit on half of the position and letting the remainder ride with a stop moved up to break even. New to the mix this morning is a AUDJPY short. Having risen to test the former range support at 76.50/80, we have seen the morning burst curbed just as a potential new resistance. Also, NZDUSD’s morning rally has pushed well beyond the average true range for the past 20 days. Having made its morning move, the pair is now stationed at a notable pivot at 0.6820/00. I have taken a small short position with a 30 point stop. A broad mix; but exposure is pretty uniform in its risk-aversion lean, so I have to be vigilant.

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The past 48 hours of market activity has brought a few rounds of volatility for the market’s; but through it all, we are still wanting for a clear direction. Surely, there was a direction in Tuesday morning’s tumble and the subsequent reversal that has continued through this morning. However, given the divergence between individual currencies, pairs and asset classes; there is little conviction and follow through on investor sentiment at this point. In this lull, some of my existing positions are starting to give back some of their gains while new short-term opportunities are starting to present themselves. Through this period of congestion though, I need to maintain an objective and bias on the broader market. I believe this congestion could last for some time; but if it does, precise technical levels will not likely hold up well. On the other hand, conditions are still very fragile; and should things start moving again, developments would likely be far more aggressive in a sell off. Therefore, I will work with the recent pause in trend while maintaining my positioning and sensitivity to further risk aversion.

First and foremost, the tempering of risk aversion moves recently has deflated my AUDCAD and AUDCHF short positions. After adding to my AUDCHF short near its former channel bottom, we are seeing it push slowly back into that channel. This is eating the profit I had on the half of my original short; but the initial entry makes for a higher average entry that can absorb further retracement. I’m still only in a half size position on AUDCAD (having taking profit on the first half a while ago). I have move my stop up to 0.8925 to further secure profit; and I would certainly jump back in to the short side if it popped back up. In today’s general rise in risk appetite, the euro has continued to depreciate (showing the true lack of sentiment behind this rise in risk). My EURGBP short has benefited for it such that we are once again nearly the broad range low of 0.8425 that stands as my hurdle to a larger bear trend. The drop in the euro has also curbed my short-term EURUSD long taken yesterday. Developed on the expectation of a relief rally and the break of a short-term (pulled up on the 15-minute chart) trendline; I was able to hit the first target of 65 points while the second half would be knocked out at breakeven. A new position this morning is a small size, short USDCAD based on a similar short-term trend push and potential relief reversal. Other pairs I am watching closely: AUDJPY for a retest of former range support at 76.50/00; CADJPY test of a strong rising trendline near 82.50 (which I missed yesterday); the long-term 50 percent EURUSD fib at 1.2135; and a break of GBPUSD congestion between 1.4500 / 1.4250.

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Trends occur in spurts and fits. The more time a market carves a consistent direction and level of volatility, the more probable it is that a change will occur. For the currency market, this change is already underway in the form of a bounce for risk appetite / yield interest. This is a blatant move for those pairs that hold a significant carry (AUDUSD) and those that are more fundamentally inclined (EURUSD). This is a natural cycle of congestion and retracement. The question from here is whether this will turn into a true reversal or this is just a pause in a larger trend. Looking for guidance, their is little to expect from the economic calendar. There simply is no particular driver worthy of a shifting underlying sentiment. That means we must again refer to the unknown and inconsistent changes in investment sentiment. There is plenty of fuel to project the market’s path through any of the three scenarios (a rise in risk appetite, further deterioration in yield demand and a continued balance between them). Though, regardless of the outcome, there are opportunities to be found.

From last week, I only held on to the second half of my in-the-month short AUDCAD and AUDCHF positions. They have both retraced different amounts; but the latter pair has returned to its long-term, former channel floor. This former support can turn into new resistance which fits my fundamental outlook for this pair (whereby the Aussie dollar is seeing growth and interest rate prospects curbed). Therefore, I have added to my short AUDCHF position back up to a full size just below 0.9650 and have set my stop on both halves to 0.9720. On the other side of this picture, we are starting to see ascending wedge formation develop on other Aussie crosses. I am particularly interested in AUDUSD and AUDJPY. The major has a range high of 0.8350 on a short-term time frame, a break of which would be good for at least a few hundred points for run. AUDJPY could see the same; but a follow up resistance level in the former of former long-term support at 76.50 could make this one play out very different. Another pair that I am revisiting after being knocked out on a reversal last week is EURGBP. Short from 0.8685, my stop is set above the long-term rising trendline that had previously defined support for this pair for so long. Also, I am keeping my eye on EURUSD for a potential break of the historical 50 percent Fib at 1.2135.

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