Monday’s trading in currencies started with an uptick in the risk assets, likely due to their oversold conditions, rather than development of positive factors. One could even say that lack of new negative events was behind this recovery. With no fundamental data of any significance scheduled for release today, markets paid attention to breaking news, which were few and sparse. Among them was a statement from Spain that this country might recapitalize the ailing Bankia bank with Spanish government bonds in return for stock. Last week Bankia asked for rescue funding of EUR 19 billion. The bank could use the sovereign paper as collateral to get cash from the European Central Bank, forcing the ECB to get involved with restructuring Spain’s banking sector. Looking at it from another angle, this action would be a de facto government takeover of Bankia, financed with more public debt under the veil of “recapitalization”.

The sentiment reversed slowly during European business hours, even as headlines were positive on poll results in Greece. Now it seems that the general public favors the conservative party, which supports bailout agreement and the necessary austerity that associated with it. However, with three weeks to the election, more than 10% of the potential voters are still undecided and we should remember that Syriza gained a lot of support in the final week before previous vote. Clearly, these numbers do not guarantee a majority win for either side and this balance can easily shift several more times between now and the election.

As mentioned in the last post, I did not expect very active markets today, except perhaps for the opening gaps. Indeed, most of the majors showed gaps at the start of the trading day and they were large enough to warrant trading. In case of the EUR-USD, I simply followed the latest minor low on the 5m chart with a sell order. It was eventually filled at 1.2583 and the trade produced 43 pips. Admittedly, though it took a little longer than one would expect, making it difficult to trade all the gaps and some of them are still open.

One of those gaps is in the NZD-USD. Recently the weakest currency, the Kiwi has been surprisingly strong today, not giving back all of its earlier gains. I am interested in shorting it at 0.7593 with objective at 0.7550, at the most, perhaps even only 0.7530. The problem here is time. If not filled within first 24 hours, gaps could remain intact for much longer. I am giving this trade one more day and if it the move does not happen, the order will be cancelled. Still, 30-40 pips in the NZD-USD is not a bad return, if the trade works out as planned.

While currencies moved a little more than expected during holiday, most them formed ranges, at least when looked at from the perspective of hourly charts. The EUR-JPY is a good example and is suitable for a straddle play. Objective for this trade would be 80 pips, no matter which direction. Previous selloff suggests eventual bearish breakout, although the purpose of the straddle is to let the market decide what it is going to do, rather than “outthink” it. Another currency pair suitable for a trade like this one is the USD-CHF, with objective in similar range.

Mike K.