We find ourselves in an interesting spot now, with respect to “where markets are headed next” as……the major “risk indices” have put in “swing lows” – suggesting that new daily cycles are now underway.
At the very least we know “things are set to bounce” but “to what degree” remains to be seen so we need to keep an open mind, and get our heads wrapped around a couple different scenarios, as well take into consideration “whatever else we can” in order to formulate a plan.
Regardless of near term market direction, we can also see that “volatility” has certainly picked up, providing for all kinds of intraday opportunities and short-term trading.
Forex trading is back!
Scenario 1:
Personally, I don’t feel the market has yet come to a “capitulation type moment” and would first entertain that perhaps we get another couple of “up days” early in the week, a fast roll over and a further dive to test the recent lows.
It would be from “there” that I would imagine the stronger and larger bounce higher in risk.
Scenario 2:
Off to the races first thing Monday morning markets start ripping higher, then higher, then higher still – squeezing every single short and pressing to the near term / all time highs.
I feel this is “less likely” from both a fundamental as well technical perspective, but considering these markets and the “desperation” of Central Banks to keep confidence in the system – I can’t rule out some completely ridiculous “media induced” rally closer to the highs.
SPX_Oct_19_Forex_Kong
Please envision the exact same chart / scenario for The Nikkei.
Either way you look at it – you’ve really got to make some solid trade decisions here. One could choose to just “sit this leg out” and be very prepared for the tiniest suggestion that things are heading lower again – then jump on the train headed in the “direction of the trend”. Or you could certainly “take a stab” at a few long ideas, just with the understanding that you are trading against the trend, and that your time may be short. Perhaps too short.
For me it’s “almost” to late already to be chasing any “short-term trades” following risk higher, as the “downtrend” in most currency pairs ( JPY related for example ) is still intact.
Take AUD/JPY for example – 150 pip counter trend move over the past two days only brings the pair to the upper portion of its downward facing trading channel, and still has it “burgundy” on a 4H as well “gold” on the 1H. It could just as easily turn lower over the next 24-48 hours and continue on its way down.
In fact considering the large moves higher in SP 500 over the past few days – the currency market “so far” has done nothing to suggest ” a major low is in” and that we should just “switch to the long side” so……..I’m gravitating towards the first scenario, and plan to sit tight Monday / Tuesday ( unless of course things are already moving ) planning to “stay short risk in theory” and look for the absolute best entries I can in re shorting JPY related pairs.
Appreciate that I am nearly 100% cash at this moment as well.
The U.S Dollar
USD is giving us no clear signals as to which direction she’s headed next week and “as per usual” the correlation with “risk” is muddled.
The Dollar has fallen from its highs yes…..but hasn’t really gone anywhere in any “big way” as it’s still trading “gold/amber” on a 1H chart.
USD_1H_Forex_Kong
Unfortunately this doesn’t provide for any “aggressive trades” in USD short of keeping a very watchful eye on GBP/USD, EUR/USD, USD/CHF as well USD/CAD for possible entry “if / when” USD breaks below the 85.00 area.
Most USD related charts “do look primed” for this trade to come to fruition – but things continue to grind. I see no immediate evidence that USD is “heading back towards the moon” as everything I track still suggests USD is set to fall further.
AUD/USD as well NZD/USD appear to be “impossible trades” regardless of the fact that NZD has likely bottomed here as well so……all we can do another day or two is watch USD, keep an eye on all these pairs – and be ready. ( I still feel AUD as well NZD need to “take a bounce here” – but it sure is a long time coming.)
Trade Ideas
The next leg lower in “global risk” is going to be a whopper – so you’ll want to be fully onboard for that. It’s these “counter trend” moves that will always throw you for a loop as it’s near impossible to gauge the “extent to which” things correct.
If you’re actually bullish then perhaps you’ll see this as an excellent opportunity to buy, although I certainly can’t recommend that.
The big moves ( and the big money ) have clearly been with JPY and I suggest a continued focus on these pairs. We know “without question” that the correlation of “risk off” = JPY strength so the question begs “if it ain’t broken – why fix it”?
This is the most obvious and blatant trade / market dynamic we can put our finger on today so it only makes sense to continue concentrating on it.
We wait for this “upward correction” to take our JPY related pairs as high as they’ll go – then get underneath them again for the next ” and larger” leg lower in risk.
We continue to monitor all USD related pairs ( as I’ve entered long GBP/USD ) for the first signs that indeed USD is heading lower and that these pairs will offer some good trade opportunities.
If we imagine all JPY pairs taking a minimum 150 pip bounce ( and even more likely 200 pip bounces ) then getting under even 5 of them, and seeing things move back to the previous lows ( and then lower even further ) – that’s a good 1000 pips before things have really even moved much!
GBP/JPY as well CAD/JPY and AUD/JPY have already made considerable moves higher, but with downtrends still very much intact.
I imagine we’ll have an answer as early as Tuesday, as to whether it’s worth it chasing a couple trades higher / long risk, or to just “sit it out” and plan for the “major trade” setting up for the next leg down. One way or another – we just want to see those JPY related pairs keep moving higher as to “get back underneath them” for some big wins in the weeks to come.
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