WATCHING PAINT DRY - I'm not one to waste words, and I will apologize right now for today's update, or lack thereof. There just isn't anything going out there at the moment. It would be really nice to talk about a new trade but the FX market has come to a screeching halt this week. I don't believe it will stay like this much longer, but for the time being, this is where we are at. If I were to break it down, there are three markets that have been finding a little bit of volatility amidst the current drought. So let's run through them.
ONE - The British Pound has been a standout underperformer in recent trade. The GBP underperformance was already there into Wednesday, and accelerated further on the back of some scaled down interest rate hike expectations. The revelation of some significantly slashed BOE wage growth forecasts in the quarterly inflation report was what inspired the latest declines. Fundamentally, I have to say I was a little surprised at the hawkishness that had been propping the Pound in H1 2014, and technically, I did not expect Cable to hold above 1.7000. The latest break below 1.6690 is important as it compromises and uptrend that has been in place for several months. Still, with the market looking a little beaten down, I'm not so sure we don't see a bit of a Cable bounce over the coming sessions.
TWO - Though it may not be as exciting to many of you, and though you may think I am crazy to talk about this market as one that is on the move, I do believe EUR/CHF is an exchange rate worth watching. This market is dropping ever slowly and is now contemplating a break below 1.2120 and towards 1.2100. We all know how interesting things will get below 1.2100 and we are now only pips away. There are some good sell-stops below 1.2100, and I think we could take out this barrier. The question then becomes whether we can actually retest and break 1.2000. I can't even imagine how many stops are below that line in the sand, and if broken, we could see a massive panic drop towards 1.1900. All of this sounds crazy right now, but it doesn't hurt to have a little fun. I love the idea of buying half towards 1.2000 and then holding on for a very long while. If we do get that drop below 1.2000, I will be ready to buy the other half.
THREE - The initial sell-off in US equities has been met with some very solid demand, and the S&P 500 has rallied all the way back into the 1950 area. Some have assigned the recovery to a market that is still very much locked within a well defined uptrend, with the latest dip serving as yet another formidable buying opportunity. Others are attributing the gains to the diffusion of geopolitical risk and a general leaning back to the side of a Fed that will remain accommodative for a longer period of time. But I don't see it like this and just view the bounce as one of those scary corrective rallies at the start of a material shift. I am looking at the chart and am now focused on the possibility of a 78.6% fib retrace off of the recent record high-low move. On my chart, this comes in around 1970. And so, this would be a great level to fade the current strength. I would even say that any hourly RSI overbought reading above 80 in the sessions ahead should be a green light to sell.