Heavy market positions still likely to be tested (EUR in particular!)
Everyone will still be a little nervous after the events of last week and I’d be very surprised if traders suddenly had the appetite for opening up fresh large positions. On the contrary, risk appetite will be weak and at the first sign of trouble we will see large macro positions heading for the sidelines.
The biggest speculative position in the market is undoubtedly short EUR. The really clever traders have been short EUR/USD since 1.35+ and are undoubtedly already booking profits. Whether or not this market has enough momentum to make fresh lows almost certainly depends on the ECB. Risk-reward suggests to me that we should be ‘buying-the-fact’ after the ECB, regardless of the outcome. We could get a really nasty spike back towards 1.20.
USD/JPY longs are the other big play in the market and I also like playing the contrarian card here. We could easily see another 120 test in coming sessions but I’ll be looking for a good entry level in expectation of a 115.00 test sometime next week.