Market Conditions and Trade Setups – 23rd Apr 09

We have seen quite a bit of drama yesterday with the Annual Budget release from UK. What surprises me was that the news was already heard of before the release and the actual news release saw major dumping of all Gbp based pairs. Gbp/Usd and Gbp/Jpy both slid by about 250-300 points respectively. I had earlier expected the selling off to have already concluded and whatever news that could follow, would only be more “motivational talk” from Darling and Co, but it wasn’t to be. From the market vibes, it must have been an extremely bearish speech or the market is clearly over-reacting. In less than a week that we saw G/U flirt with 1.5000 level, it has completely went south the other way and is now hovering around the 1.44-45 region as we speak.

I am still biased towards a recovery and strength with Gbp overall and with continued weakness against Yen, i feel that Gbp/Jpy will give good room on the upside. The question now is whether the dust from yesterday has settled and could we see risk appetite with the market buying back Gbp and other riskier assets or shall we see continuation of this mentality today as well?

The confusing area is that there is no overall market correlation. We see absolutely no strength or weakness in E/U, N/U, A/U but complete weakness in G/u only. This concludes that the primary concerns revolving around the UK economy is largely evident in these price movements. I am positive that  we should see a good retracement on G/U today and if not, a longer but slower recovery.

As i had opined yesterday, the downtrend channel has been broken and we could see a climb upwards. However, the news yesterday stole the limelight, completely cancelling out the gain made yesterday. I have gone long at 1.4470 level, bouncing off a 38.2 fib level.

As for Eur/Usd, it has been contained in such a tight range that a breakout could soon be imminent. As you can see below, the range is contained between the 1.3020 and 1.2900 level. If there is a breakout on either side, we are going to staddle pending orders about 30 pips away on either side. Should the market test these levels on either side and simply crawl back into this range, we are giving a 30 pips stop loss, which should take the price level back into the range.

As always, happy trading and god bless.

Seeni

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