Good Morning. My first boss, back sometime in the Mesozoic Period, always used to tell me ‘There are just four things you need to know in this (FX) business: Who’s long, who’s short, who’s under water, and who’s nervous”. At the moment, everyone is nervous; yesterday, for example, even USD/CAD, not normally a volatile beast, traded on four big figures (.99, 1.00, 1.01, 1.02). Everyone had opportunities to be both profitable and under water, regardless of position.
So, where are we left today? The consensus thus far this morning is that there won’t be finality at the Eurozone summit this afternoon. Normally, this would be a major negative for the Euro, but it’s being saved due to growing expectations that the Fed will be rolling out a mortgage-oriented QE3 shortly, a negative for the Dollar (and a positive for Gold).
While this sort of back and forth is the market’s theme, a greater readiness to take profits, and to protect positions with stops, probably makes sense. Todd often points out that it’s possible to trade smaller in times of unusual uncertainty or volatility. Stops have already been run to the upside this morning in EUR/USD above 1.3955, but 1.4000 is the sort of level that should be defended, at least initially. It might be prudent to keep an eye on the clock today; all 27 members of the European Community meet at noon EDT, while the main event, the gathering of the Eurozone heads of state, is scheduled for 1:15 PM EDT. There will be plenty of headline risk.
As always, best of luck.
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