On the risk spectrum for range trades, the potential triple top that has developed for AUDCHF over the past two months is certainly high up on the scale. Volatility behind risk trends have picked up somewhat over the past few days; but a clear direction still evades swing traders’ grasp.

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•    British Pound Mostly Weaker Ahead of BOE Meeting – No Changes Expected
•    Euro Gains as Greece’s Finance Minister Rejects Need for National Bailout

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Student’s Question:

Is the following bearish engulfing pattern?

How would you place your stop? Where would you enter? And your target?

Thanks

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The US dollar tumbled, equities rose, and Treasury yields on 2-year and 10-year notes pulled back following the release of the minutes from the Federal Reserve’s December 15-16 meeting. While the minutes showed that there was broad agreement to leave their asset purchase plans unchanged, there were a few members who said more stimulus "might become desirable" beyond the first quarter, especially if the economic outlook weakens or if there is a deterioration in the functioning of the mortgage market.
 

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The Bank of England is widely anticipated to hold the benchmark interest rate at 0.50% in January and maintain its GBP 200B asset purchase program as the expansion in monetary and fiscal policy continues to feed through the real economy, and the central bank is likely to hold an improved outlook for future growth as policy makers see the nation emerging from the worst recession since the post-war period.

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There are fundamental links underlying the market which wax and wane depending on what the prevailing concerns amongst investors. For example, one of the most prevalent trends of the past 18 months has been the health and direction of underlying risk appetite. With the 2009 rebound in speculative interests, the market would ultimately rank each currency for its potential for return. The greater the divergence in yields, the more attractive the pair was with traders hungry for return.

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Growth is a primary concern for fundamental currency traders; but in a market where strength is relative, straightforward indicators don’t have such a direct impact on price action. We can see this relationship in the release of the US dollar’s reaction to the ISM non-manufacturing composite (a service sector activity gauge). According to the report, the service sector – which accounts for nearly 90 percent of the economy – expanded through the month of December with a reading of 50.1. Yet despite the promising outlook this data paints for growth, the US dollar’s immediate response was a significant selloff against most of its liquid counterparts.

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The Australian dollar is the best-performing currency against the greenback on Wednesday and the high-yielding currency may continue to appreciate going into the Asian trade as it benefits from the rise in risk appetite, while the Japanese Yen halted its two-day rally and remains the weakest of the majors.

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