FX Trading - Fear on the Bridge

The story so far...

Risk on: On Thursday last, the ECB and BOE gave traders what they expected, though the real action took place on Friday as the USD was sold off to its lowest levels since late last year. All was well in the FX markets, no one broke a sweat. The US even managed to avert a government shutdown. Hurrah!

Pause: On Monday, consolidation was the name of the game with no major releases and only a Fed dove on the cards. 

Risk off: Early Tuesday, the IMF threw a spanner in the works downgrading growth forecasts for the US, Japan, Australia and New Zealand, generally offering a rather pessimistic view of things, although China's still shining bright of course. The nuclear crisis level in Japan was raised to a Chernobyl-equivalent 7, and continuous aftershocks only serve to make matters worse. So we saw all the recent out-performers coming off their highs in Asia, along with the equitiy markets in trading. 

Currencies

With all the recent excitement, GBPUSD still seems trapped in a wide 1.60-1.64 range. Failures above 1.64 has seen the pair pull back as low as 1.6265 so far, while markets await UK CPI later today and jobless numbers Wednesday. Housing data released earlier gave little joy to sterling as players look for rate clues. Still looks to be a range play.

GBPUSD - Feeling trapped

Unsurprisingly, EURUSD retains much of its strength given yield differentials and continues to look unbeatable for now.

EURUSD Weekly - don't fight this

USDJPY lost some of its shine on Tuesday but good buying was evident in the mid 83's, suggesting that this pair has not given up and buyers seem lined up all the way to the low 82's. Wouldn't buy here, but worth watching.

USDJPY - It's not over yet

Also, things look pretty shaky on the equities front, as can be seen from this S&P chart. Volumes have been low, players have been cautious and the market looks vulnerable at the moment. Earnings season is coming up so we'll probably see volatility increase. 

S&P losing momentum

Trading

An attempt to profit from JPY weakness obviously failed early Tuesday and positions were stopped out. Markets seem to be taking a breather after the recent craziness, although early European trading has seen some of the usual risky plays come back in. We'll let the market sort itself out a bit and see how things go from here.

Peace.