Further dollar weakness on more QE hopes today. As USD/JPY took an absolute battering, we were looking for a long entry on the test of support but never got the entry signal. This is why it is so key to wait for the right signal before entering.
UK and US trade balances came in better than expected but with the up-coming risk events these had very little impact on the markets.
It looks now like QE3 and an all clear from the German Constitutional Court has been priced into the markets. This gives us two real considerations:
- If we do get QE3 and the all clear, how much higher can the markets go?
- If either disappoint, how quickly will the fall from grace be?
Realistically we suspect that markets could test recent highs (and possibly beyond, we could make a quick move up to the 1.30 in the euro) on QE3 and ESM all clear, on the flip side there is a long way to go down for risk and a long way up for the dollar. This could be a case that everyone has bought risk, on the rumour of QE3 if it doesn't come the selling will start.
At this stage though don't jump into a trade too early, with retail investors positioning themselves heavily short risk (normally a contrarian indicator), I would not be surprised to see a few institutions out there stop hunting either way.
Remember "trend is your friend" and wait for the signals, we don't see any issues with the German Constitutional Court, although maybe some conditions, given the Bulls seem firmly in control, I'd expect that to push us higher before we see any potential selling (if it even comes). Buy the rumour, buy the news?
We should hear from the German Constitutional Court around 9am UK time tomorrow so set your alarms. We also have the EU revealing the rest of their banking union plan and the Dutch election results and possibly the launch of the iPhone 5 (Samsung fan myself).
EUR/USD
Euro seems extended here but managed to put in another push higher on more Dollar weakness. Our alert from last Thursday still paying off really well, although we closed this prior to Mondays profit taking; if you are still in it use the 4hr chart to manage stops and see how far it can go. At this stage we keep our Bullish bias and wait for another entry signal preferably on a re-test of support level 1.2725 perhaps.
GBP/USD
We highlighted last week that if this broke the resistance level expect it to push higher. Strategy remains the same. watching for a pull back and good entry signal to position ourselves long.
AUD/USD
Aussie pushed higher today primarily on dollar weakness, it's key not to fight these strong trends but we can't help but feel this is a little overdone, that said if Bernanke releases QE3 then this is likely to test recent highs as a minimum.
USD/JPY
Ideally we were looking for some long positions off of the previous support level, however, we unfortunately never got the entry signal we were after, instead the pair continued to decline further on QE hopes. If we break much lower in this pair then the next key support comes in at the 76.00 level (potential yentervention levels?).
Interestingly on the weekly we actually got an entry signal calling for further shorts on the dollar.
Couple of alerts tonight highlighting CAD weakness (CAD/JPY and GBP/CAD), given that Retail Investors are heavily long CAD/JPY, these might be worth a look.
CAD/JPY And GBP/CAD
Fundamentally the pound might be better if we do see positive news from the eurozone and it is with the current trend (just), however the chart is pretty messy (sign of a relatively confused market); CAD/JPY is a slightly neater signal although counter trend and not sure how much yen strength we will get if we do go into risk on mode. Remember if you are unsure on either don't take them, wait for a better signal (sure this week will bring them).
GBP/NZD
Unfortunately this pair got stopped out for a small loss. 
AUD/JPY
Continued aussie strength today with commodity gains, our alert still remains valid with the opportunity to enter at a better price, however, with the continued strength in risk this could stop out on volatility over the next couple of days.