Enter the FX market’s ‘Period of Pain’

It’s two weeks before Christmas, liquidity is drying up very sharply indeed according to interbank e-commerce dealers, and all positions are now fair game for the stop-loss munching machines.

USD/JPY was the first to experience the pain with an overly positioned market falling almost 400 pips in a few short sessions. Short EUR positions could well be the next big targets? I’ve exited my short EUR/GBP trade and will sit happily on the sidelines after a rough 6 months 🙁

This is not the time of year for having stubborn fundamental views, this is the time of year to play good defence.

  1. AUD/USD has reached the USD$0.82 handle and may have satisfied the capitulation low (though another dip to just under the figure is quite possible). Also the one way traffic in USD longs is also at an extreme. I believe we may have seen or are very close to seeing a corrective low in the AUD/USD and that new highs (above USD$1.10) in 2015 could be on.

    Gold closing above USD$1210 at year’s end will be telling if the scramble to own USDs is coming to an end.

  2. Totally agree with you. We have about few days (hardly 5-6) of good liquidity left to trade. Lots of positions needs to squared and booked. Its good to stay on sidelines.

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