Looks good for some two-way volatility in European trade

The AUD was quite interesting, rallying strongly despite a much greater than expected rise in the unemployment rate, a sure sign that a market is short. Any dips now back towards today’s opening levels at 1.0210/20 should be well supported whilst resistance levels at 1.0310/20 should also be hard fought.

EUR/USD should also be interesting. The Spanish downgrade illicited a bit of an over-reaction from the market, sending EUR/USD down from 1.2890 to 1.2850 and then triggering stops below 1.2850. The 200-day MA held well once again and we’ve had a relieving bounce. EUR/AUD selling has also been an important factor. I have a feeling that Europe may target the downside first up but whichever side is tested, a wide 1.2750/1.2950 range will surely contain prices for the next few sessions.

Cable is also interesting, with Sovereign buyers lined up 1.5950/70 and real-money funds selling into rallies. I like the buy-dip play here especially with EUR/GBP still looking soft.

Hopefully we should be in for an interesting and volatile session, driven by trading and not just news headlines++

  1. Hi Sean, a stupid question from me, why is “rallying strongly despite a much greater than expected rise in the unemployment rate, a sure sign that a market is short”? Thanks.

  2. Hard to tell how EU traders will react, as the news can also be seen as “positive” because it may lead to a sooner bailout request from Spain.

    I agree, let’s hope for a volatile session! It was quite difficult to trade EUR/USD these days, at least for me. 🙂

  3. Hi Jones, the mkt expected unemp rate to rise to 5.3% from 5.1% and was short in anticipation. Rate came in at 5.4%, virtually guaranteeing another 25bps rate cut next month one wud think, yet the AUD rallied straight away. Sure some of the sub-data was ok but that’s still a big jobless rate jump. Therefore the mkt must be mega short AUD across the board.

  4. Good morning Sean and all,

    Both our recommendation to buy close to the support trend line of the wedge and to short in the 1.2880/1.2890 area have turned to be correct. The market is neutral-bearish this morning and will most probably test again the wedge limit and the 200DMA as you mentionned. The threshold levels indicated yesterday (1.2815, ~1.279, 1.2735) are also in sight for some stop loss hunting. Given the spanish sovereign downgrade, and the fact the SP500 is on the edge of exciting a longterm upward channel as shown on the picture below, there are some chances we might witness the start of the risk off impulsion that we were expecting for the month of October. However, I still believe the EURUSD will visit new highs (the upper edge ofthe wedge) before it finally dips, therefore my expectation for today is for some choppy trading. In other words, we break the 200DMA, then the 1.2815, then we hit the support trend line currently at 1.278, possibly go below to hunt for the stop losses and then rebound by the end of the day. Therefore, I recommend to buy below 1.28 (be patient!) with a scalping approach, that is limited gains or SL to zero.

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