My long EUR/JPY position was stopped out Friday afternoon at the 133.97 level for a mere 30 pip gain. I was protecting my profits in the hopes that if the pair fell through my stop-level, I would have a chance to buy it back lower. So, here we are, Monday morning and I can buy the pair back almost 100 pips lower (see chart below). The question is should I??
The answer lies in defining global risk appetite, at least for the week ahead. If the USD should find real strength this week and the week ahead, it would mean that investors' appetite for risk is weakening and they will all flock to the USD like birds going south for the winter. And after just a few days, the momentum can build up so intensely that the US dollar may look like the L.I.E. on Labor Day - a parking lot. We saw this last year around this time (see EUR/USD chart below). Although the circumstances were a little different (the credit, housing and auto crisis was relatively fresh on the global scene), no one can say with outright certainty that momentum of that nature isn't again possible.
The answer lies in defining global risk appetite, at least for the week ahead. If the USD should find real strength this week and the week ahead, it would mean that investors' appetite for risk is weakening and they will all flock to the USD like birds going south for the winter. And after just a few days, the momentum can build up so intensely that the US dollar may look like the L.I.E. on Labor Day - a parking lot. We saw this last year around this time (see EUR/USD chart below). Although the circumstances were a little different (the credit, housing and auto crisis was relatively fresh on the global scene), no one can say with outright certainty that momentum of that nature isn't again possible.
The US economic data out this week tells a mixed tale of good and evil. Chicago PMI came in significantly higher than expected, boosting the higher USD argument:
Mon Aug 31GMT 13:45 USD Chicago Purchasing Manager (AUG)
(actual) 50.0 (forecast) 48.0 (previous) 43.4
The remainder of the week includes improved vehicle sales expectations (which is a doomed figure, riding out the tale-end of the cash-for-clunkers momentum), higher ISM Manufacturing numbers, and lower pending home sales and construction spending figures. This mixed bag of cherries will be topped off with a worse-than-expected unemployment number, coming out Friday.
So, as GNR would say, "where do we go now?? ah ha ah ha ah ha ah haaaa...." Is the USD going up or down, left or right? The short answer is, I don't know. The better answer is most likely DOWN! there I said it...
From the charts below, support levels for the EUR/USD, Cable, USD/JPY and EUR/JPY are about 500 pips below the current market price. That's quite some wiggle room, so I would keep a fairly tight stop on any short USD or short JPY position (the safest play probably being long USD/JPY). I will look to get back into the EUR/JPY and possibly USD/JPY and/or EUR/USD once the hourly charts look a little more favorable from a risk/reward standpoint. I'll try to keep my positions posted...
Sorry for the long-winded article. I'll keep the rest short and sweet... child o' mine!
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