European Union leaders are meeting this week and are expected to discuss the issue of Greece. More precisely, should that country receive help in dealing with its budget crisis. Statement is anticipated later on this week, covering the bailout. Probably “bailout” is not the right word, because we are talking about extending credit and/or guaranteeing debt, rather than handing out the money. Things could get worse, of course, but for now we are dealing with commitment to support, should that country need it. Until now official position of EU has been inconclusive, at best, with reported statements contradicting each other.

Problem is, that Greece is just the tip of the iceberg. On the scale of the continent, it is relatively small amount of debt to deal with. But whatever action is taken will set precedent for the future, and open possible Pandora’s box. Many more countries in Europe have an oversized public debt. Spain, Portugal, maybe even Italy could be next in line. That would create serious problems for the entire Union and its currency, the Euro.

Much has been made over last couple of days about record net short Euro positions in Futures. Reports suggest that speculators are about $8 billion short EUR against USD. In terms of total Forex trading it is a small number, however, it can be used as a proxy for the market as a whole. It is extreme, apparently a historic high, which indicates that sentiment is Euro negative. This could suggest that the Euro sell off is overdone, since market participants as a group tend to be wrong at market extremes. If everybody already sold EUR, who is left push it even lower?

Yen pairs remained within the ranges established late last week. They are very wide, 200 pips or so for most crosses, and are very playable while waiting for next major move. Since I’ve been talking about AUD-JPY lately, here is the continuation for this pair. Very early in the day I went long at 77.01, after a reversal candle provided very attractive stop. My objective was also a small one, 50 pips, just trading small moves within the congestion zone.

The 50 pips happened very fast and price just kept on going up. As it approached upper band of the range, I expected resistance to kick in and shorted it once 100 SMA was touched at 78,24. This proved a little premature, price made another high before moving lower again. This swing is very suspect and doesn’t have the strength I hoped it would. I closed for a little over 50 pips.

I waited a little longer to sell CAD-JPY and shorted it on the second small move up. This proved to be better entry, and produced bigger profit in shorter time span.

It seems that market momentum is shifting to bullish moves. It might not be a bad idea to buy upside breakouts, with objectives of 80-100 pips. There is a “but”, however. In my head I still see these pairs moving lower, so it is difficult for me to just jump in and buy everything in sight. With AUD-JPY acting the strongest of these crosses, I will use it as a guide. If it breaks above 76.85 and stays there, I’ll get in on other JPY pairs. This means that I’m forgoing some potential profits, but buying then should make me feel more confident with the currencies following it.  I strongly feel that next move up could be a fake, so confirmation is necessary.

With Canadian Dollar weakening today, GBP-CAD looks promising again. Last time I looked at this pair, trade didn’t happen, it continued lower. I’m giving it another try at this level. One of the scenarios I’d like to see is for the price to get to 1.6790-1.68, establish another resistance point and pull back. This could present decent buy opportunity on next move above it. Also, should the market retrace to under 1.6700, strong candlestick reversal formation would signal potential buy. Will see.

Mike K.