- Price action warning of surge in volatility
- Still looking to buy EURUSD and GBPUSD dip
BIG MOVE AHEAD? - Are we on the verge of seeing a major breakdown in currencies and fresh upside in the Dollar and Yen? Are we nearing that point where this equity rally is about to stall out and reverse sharply lower to fresh multi-month lows? It certainly feels like this could be a realistic scenario. Why? Well if you look at things technically, you will see EURUSD has just broken back below key previous resistance at 1.1060, while Cable has dropped to a fresh multi-year low. Meanwhile, the commodity bloc and emerging market currencies have been very well bid, which could mean these markets are on the verge of showing signs of exhaustion and rolling back over. I think for Tuesday, we need to keep a close eye on EURUSD 1.1000 and GBPUSD 1.4080. If we see daily closes below these levels, it would significantly strengthen the bearish outlook and prospect for a fresh wave of currency declines. Until, then just sit back and wait for the market to come to you.
FALLING KNIVES - As a contrarian, I will still be looking to buy EURUSD and GBPUSD dips, and will be doing so today on an expectation these market won't be able to sustain weakness below 1.1000 and 1.4080 respectively. At the same time, I will only take a shot and buy into this dip, if the intraday readings warrant me taking such a shot. When you are trying to go against a trend, you need to be very careful you don't jump in too early, as you will more often than not get steamrolled. Trying to fade trends takes a lot of experience. But I do so because in the end, if you can pull it off, it pays off handsomely. They say 'no pain, no gain' and so, being in a business where I am catching falling knives should therefore produce a lot of compelling upside. Other markets I could be trading on Tuesday are USDCAD and USDJPY. Both are under pressure and could soon test key levels in the form of a multi-month low and medium-term trend-line respectively.