Coming Full Circle


REVISITING - Earlier this month, we caught a nice trade in EURAUD, picking the cross up around 1.3700 and riding a quick rally towards 1.4100. After exiting the position, I said I like the idea of jumping back in on a dip and until now, that opportunity was not on the table. After exiting the cross continued to push higher, trading up above 1.4300 before finally topping out and pulling back over the past several sessions. Setbacks have intensified and this latest round of setbacks has me interested once again in building back into that long position. This is a cross rate very much tied to global risk sentiment and the strong recovery in the US equity market on Tuesday has inspired a fresh wave of demand for the Australian Dollar, all while the Euro has come under pressure. 

BREAKDOWN - But I love the idea of buying dips and believe this setback should be well supported for a higher low ahead of the next major upside extension back above 1.4300. When you look at the monthly chart, which was the original inspiration for the initial trade, the market has bounced off a major support area ahead of 1.3500 and has also put in a bullish reversal month after taking out the February high. Fundamentally, I have my doubts about this recovery in stocks and as much as everyone is thinking here we go again back to fresh record highs, I'm not so sure we don't stall out and break back down below the current SPX weekly low around 2320.

The month started with a $EURAUD play and we're looking to take advantage again into the monthly close. Via @joelkruger

INTERESTING THING - If stocks do stall out up here, it bodes well for the long EURAUD play, which actually correlates much better when stocks are dropping than when stocks are rallying. That is to say, if stocks keep pushing, it doesn't necessarily mean we see EURAUD much lower. But if stocks drop, EURAUD should rally up quite a bit. So this is where I'm looking again right now and we'll see how it all plays out. We're coming down to the wire in this month of March and we've already put together some nice realized profit. I will continue to keep my head down and wait for the optimal times to take advantage and strike. Just as a bit of a digression to end off, another reason I see risk coming off is that I have a hard time seeing a scenario where USDJPY doesn't break down below 110.00. The major pair has avoided breaking below this barrier but it looks like pressure is building and the levee is on the verge of breaking. 

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