Post yesterdays equity selloff and recent dollar weakness some very interesting market moves could come about if we have significant misses on data.
The dollars positioning is interesting, over the past few weeks we have seen a massive re-balancing takes place over the recent hawkishness of ECB euro zone and BOE. If we post strong data we could see a return off dollar strength and weaker currencies will pay heavily such as JPY. My bias is long euro however my planned entries below may give way if dollar comes back in a big way. We need to keep in mind that euro have not rate cycle planned as of yet however the FED have been raising rates in the US. Essentially the euro recovery is still in processes and nothing solid has yet materialized from the ECB, just light talk of a cut back in stimulus later this year.
The day ahead will be driven by data, I wont spend much time planning in the way of trades as we could reach anywhere and break any level depending on how the data falls. That being said, I am preferring a negative outcome today.
Will split my trades in terms of assets I would most like to trade based on the outcome of US data, for example, if US data is negative I will look to trade two products and if positive will look to trade another two products.
Products I am looking to trade are:
- YEN, EURO, DOW 30, WTI.
Euro long miss on US data, staying onside recent euro strength.
Weaker dollar will look for the breakout, must be mindful of equities correlation, if we get negative data we could see the indices selling off. If we break above R1 I am long till r2 and 46.00 handle.
Long on missed data, dollar has been posting gains against the yen (yen weakness for sometime) This oversold nature of the Yen could be very interesting if we miss on data, dollar takes a hit, equities sell off and we get a flight to quality in Yen. I like yen today as its positioned quite nicely. We got confirmation of flight to quality yesterday during the equity selloff this could continue if dollar and equities take a knock.
An even better trade would be the inverse, good data, dollar strength and I am looking for the break below pivot, Yens data missed expectations during the overnight session. So dollar strength could see the continued sell off of yen also staying onside of the current trend for higher probability. So good data equity strength and dollar strength I am long JPY.
Dow 30 Short
Potential longs having been washed out yesterday, there maybe less support if we get a nice miss on the data at the bottom of the range, will keep an eye out on indices to see how it plays out. I am a little unsure of how the reaction will play out as we have two data drops today. If we break the bottom of the range we could end up seeing a nice 3-5% correction in stock indexes, that would be the best possible trade today.
On the flip side, good data, we a nicely positioned at the bottom of the range and above pivot, rally to the upside on good data is also a nice trade.
Again, I am looking to see what happens with the dollar and will probably only trade this with solid confirmation and breaks of key levels.
Disclaimer: There is substantial risk in trading. A loss incurred in connection with futures trading be significant. Target Alpha Trading makes no claims whatsoever regarding passed or future performance. Any Strategy is for educational purposes only.