Over the first 48 hours of this week, the steady winds of risk aversion let up and sentiment was able to recovery a little lost ground. However, the drive behind this counter-trend move was not derived from a critical change in underlying sentiment but rather a natural correction while fundamental activity was otherwise slow. Under such conditions, short-term retracements and correction are not uncommon; but this drift alone does not usually alter the course of the broader market. With a lead in to tomorrow’s ECB and BoE rate decisions, then further on to US NFPs; there is a potential anchor for trend development. Keeping this in mind, we have a tangible threat of volatility; but we also have to expect trends to elude us through the immediate future.
In the meantime, I see trend and breakout pontential – and am setting up for both. EURJPY had already marked its break two weeks ago when it dropped below 127 support that had been in place for nearly eight months. Squashed sentiment trends prevented a clen follow through on the trend break and has kept the pair just below the former support level. If we are set in neutral for too long, we could simply chop below this new resistance; but it is also possible to see a break back above resistance. I am taking a chance with a short at 126.85; so I have set my stop wide at 128 and reduced my position size until it is clear that bearish momentum is once again developing. Another currency-trading.ch/”title=”forex” >forex.com/category/yen/”title=”yen” >yen cross more prone to a bounce is AUDJPY. After testing its long-term rising trend (from April), 200-day SMA and the major 50% Fib level just below 80, the pair has shown a propensity to hold the technical barrier. However, there is still a descending trend of highs building pressure on support; and a break grows more likely with each day. I will look for a clear break of 79.75 to provide an entry signal for a short position.
