Tuesday morning found the S&P futures down over 60 full points and the EURJPY down over 300 pips from last Friday's close, until the Fed stepped up and cut the Fed Fund and Discount rate by .75 to give the markets a semblance of security. The markets rallied sharply initially, before falling back off just one-half hour after the rate cut. After testing the buyers' resolve one more time however, both stocks and the carry trade found support at lower levels, and recovered around 9AM CST to power out of the hole to the collective relief of both Wall Street and financial centers worldwide. While EURJPY recovered Monday's sharp losses, as of this writing it was still below last Friday's settlement, leaving the short-term, or immediate trend on the daily chart, pointed lower.
The market that stood out for me on Monday was USDJPY. This market had been the leader on the downside previously, yet on Monday, in comparison to the other carry pairs, it was little changed, which would support traders' recent thesis to not press USDJPY on dips for fear of BOJ supporting this pair between 105 and 106. With positive divergence now building on the 240 and 60-minute intraday charts, this pair may be ripe for a short-covering rally along the lines that we saw back on 1/08 and 1/09. Even with room above for such a rally, the short-term trend on the daily is still pointed lower.
Following EUR's cliff-diving act on Monday, this pair posted a recovery rally through the London and the Ami (NY) session, taking strength from the 7:20 AM CST .75 Fed rate cut. As of this writing, EUR is trading above last Friday's settlement, which supports its current short-term stance on the daily chart which is neutral following this pairâ€™s failure to re-test 150 last week.
GBP posted a bullish divergent bar today which could point to a short-covering rally in this pair, which some traders think is overdue. The Pound is currently trading over 250 pips above yesterday's lows.
With so much fundamental dust stirring it's hard to measure the effects of today's actions until things settle down some, but if you are an end-of-day trader who takes his signals based on the closing price, you need to remember to stick to your method.
Should you have any questions about markets or trading strategies please feel free to give me a call.
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