FX Trading - Mama Said Knock You Out

Our GBPUSD long at 1.6358 was stopped out at 1.6313 for a 45pip loss, as the pound took a dive to the low 1.62's after the BOE minutes and into a highly entertaining budget speech (if you missed it, try looking on the net; I'll put up a link if I find one). Taking a look at the dailies, we see a textbook Bearish Engulfing Candle! Time to short? To stay on the cautious side, we'll wait for a test/break of 1.6200 or thereabouts. See the chart:

GBPUSD Topping?

Our EURGBP long at 0.8738 (so far way!) remains underwater, with stop at 0.8610. Prices are still within last week's range, so we shall not be clever and try to second guess the market.

Over in Europe, the Portuguese Prime Minister quit like he said he would as parliament rejected the austerity measures, and it is looking increasingly likely that Portugal will have to ask for a bailout. The EU summit begins today, and a nervous market sold off the EUR amidst fears of another European credit crisis. Oh wait, maybe not another one but just a continuation of the last one. After this week's rejection at 1.4250, have we seen a top in EURUSD? Take a look:

EUR topping out too?

Apparently what's keeping a floor on the markets at the moment is that expectations for a rate hike from the BOE and ECB in coming months remains largely unchanged after yesterday's events. Well, even with inflation obviously a threat, a rate hike now would likely be very harmful to UK growth and European debt, and may ultimately hurt the global economy again. What do you think?

Volatility has tapered off and markets seem uncertain at this juncture. In fact, price action in the equity markets this week look like a mere consolidation after the large sell-off from the Japanese earthquake, and we may be set for another slide lower. Looking at the S&P chart, prices remain under resistance, and may have a hard time gaining more ground.

Emini S&P-strength not convincing

So what's next? Are traders being overly optimistic? Are we headed for a deep plunge into the abyss? With uncertainties in Europe looming over our heads while the European summit takes us into the weekend, it may be best to sit this out and keep positions to a bare minimum (short EUR?), as Monday may bring a rude shock. But we're getting ahead of ourselves, there's still a couple days of trading left.....

"Meditate on this, I will." - Yoda

Peace