Volume and volatility should remain low as we enter the last official week of summer. However, we should see the markets pick up in the next few weeks.
The economic calendar is light today. England has a bank holiday so expect range-bound choppy conditions to continue. The sterling/dollar (GBP/USD), sterling/yen (GBP/JPY) and sterling/Aussie (GBP/AUD) are all little changed from the Sunday open.
A FEW PIPS?
Shorting near highs and buying near lows offer easily defined and the possibility for a few pips. Considering the selloff in the Aussie/dollar (AUD/USD), I would be cautious in buying either the sterling (GBP) or the euro (EUR) verses the U.S. dollar.
SHORT SCALPS
For the rest of the day, we may expect the euro/sterling (EUR/GBP) to be capped at recent hourly highs between .7924 and .7931. I will be looking for short scalp setups at these levels.
AUSSIE/YEN LEADS S&P
On a longer-term note, we have some very good technical reasons to short risk through the Aussie/yen (AUD/JPY) cross. This pair is often a leading indicator of the S&P.
DOUBLE TOP?
On the daily chart, AUD/JPY topped out earlier this year on 3/19/12 while the S&P didn’t top until 4/2/12. Technically, we could see a double top on the S&P and while it is premature to call for a large sell-off in equities, corrections are healthy. The 1390 area has been in play quite a bit in the past.
PLAYING SHORT SIDE
On the AUD/JPY side, we have seen some good short opportunities. The first short came in at the .618 retracement of this daily swing high to low. I have been shorting off this level since we broke out of the daily bull flag on July 27. The second entry came from the trendline break on August 23. We are currently sitting on minor support, and the 200-day moving average (MA). If you short this low, be prepared for a bounce before seeing many pips.
STRATEGY
I will be looking to short pullbacks in this pair. Currently, a retest of the broken trendline, or the 82.32 area would be short-able. If we break below these current levels, I will be looking to short a retest of the 200-day MA, and this support/resistance around 81.50-60.
