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When we look at the range of opportunities as traders, one world typically comes to mind: volatility. Yesterday provided us with perhaps some of the biggest string of events we have perhaps seen a several weeks, despite the ongoing, consolidated patterns across the breadth of majors.

If you follow my updates, I’ve been mentioning the 1.5000 SNB ‘tolerance’ level on EUR/CHF for the past week. Close to getting hit yet again Tuesday, the SNB reacted, this time in a very aggressive manner. Though they declined comments regarding any action, reports were coming through of ‘direct buys’ from the Bank and one particular UK clearer that spiked EUR/CHF from a low of 1.5013 to a high of 1.5381, for a daily range of approximately +368 pips. USD/CHF created a daily range of +390 pips. The pair currently trades towards the high of the initial spike, and consolidation is to be expected at this point. The luster seems to be over for the time being, and I currently don’t see a clear conviction to either buy or sell either of these pairs for the time being.

Particularly in the low 3800’s (1.3825 or so), there have been reports of sovereign interest buying into EUR/USD. This ‘interest’ was able to prop up the pair last week and bring it to new highs at 1.4138, doubling on top of rumors of European central banks dipping in and buying it over the past couple of days.

Typically, ‘sovereign’ interest is in it for the longer haul, and the pair is likely to meet a string of buyers again should it drop below its current trading range. From a technical perspective, it has broken the down-sloping trendline originally created by a head and shoulders pattern, and did not close below it yesterday. So whilst a string of FOMC reactions, among other intraday events, might have caused the pair to drop lower, bias is still generally geared to the upside. Bank research notes seem to agree. As I scan my arsenal of IB research, ‘Long’ still appears to be the consensus for the time being.

Our major levels of interest below on the pair are 1.3904, 1.3928, 1.3793, 1.3722, and 1.3668, should we see any further declines from here.

The ongoing strength of GBP/USD seems to confirm these thoughts regarding recent dollar weakness. Tuesday, reported Asian sellers in the 1.6600 area helped cap buy orders on the pair ahead of BOE Governor King’s address before the Treasury Select Committee. The intraday decline hit a low of 1.6368, in line with seemingly perfect technical support. Looking at daily charts, the downward sloping diagonal trendline from June 3rd has now been penetrated, and these initial highs are yet again at risk of being taken out. 1.6200 buying pressure never let go of the pair in the last week, with a hard line of institutional interest protecting the pair from lower lows.

Lower levels for cable include 1.6368, 1.6241, 1.6200, 1.6150 (channel low), 1.6090

USD/JPY has been steadily propped up over the course of the past several days, due to the aid of FOMC speculation and a lower than expected trade surplus from Japan. The downward-sloping diagonal trendline has now been penetrated, and we’re seeing a backwards-bounce off of this line recorded yesterday. Regardless, the ‘main events’ are now over for the short term and a correction could be due. Technical analysts still seem to be ultimately targeting lower lows in the weeks ahead. Short term, I prefer looking for sells out of ‘exhaustion’ from the recent speculative rally. In the week ahead, we could continue to see buying pressure matriculate, though it is likely to me met by sellers along the path, looking for broader-term trend continuation.

Levels ahead of USD/JPY include 96.88 (50% ret.), 97.27, and 97.94 (76.4 ret.).

Despite the recent decline of world equity markets, the dollar remains weak, creating a short term out-of-synch correlation with risk.

When world markets decline, analysts begin shouting outrageous price targets lower, when no more than two weeks ago we were listening to similar outrageous claims of 1200 getting hit on the S&P in the very near term, etc. But markets don’t simply traverse up or down, and in fact most of the time they remain consolidated. Regardless, this downside risk to the world equity markets is still very much a concern, with more and more reports of long equity baskets getting stopped out and recommendations to go long US treasuries trickling in just about every day now. With this deflection-to-risk scenario developing with the dollar against “English speaking” currency pairs in recent weeks, we have reason to believe that any further increase in world equity markets would accelerate the pairs higher (against the dollar), while any moves lower in world equity markets would simply be muted.

Disclosure: Long FXB, Long FXE.