Volatility simply dried out in the afternoon trading, with markets seemingly getting ready for the presidential election in the USA. All kinds of speculations are flying around about how the Dollar will respond. Most of them will probably prove to be false. The general consensus is that Romney’s win should be positive for the USD, while Obama’s second term might weaken the Dollar. However, if Romney is elected the response will likely be more volatile, because probability of his win is lower to that of his opponent. It is entirely possible that we will not have a clear winner on Tuesday and have to wait few more days until all mail in ballots in several states are counted. I cannot imagine trading the USD not, unless the outlook is very short, no longer than few hours.

Meanwhile early hours bring another important event, in form of the policy meeting by the Reserve Bank of Australia. Their interest rate decision always creates a sharp response in the Aussie, with perfect example last month when the central bank lowered its benchmark to 3.25% from 3.5%. That move surprised markets as analysts had predicted no change. Things are different this time around, as “experts” are calling for another rate cut to 3.00%. Hard to say, whether this is already “priced in” or if analysts will be wrong again. We should expect volatility following the announcement, which can easily spill over to the other commodity currencies.

Last week I had several trades in the Australian Dollar, all of them on the short side. What lacked then was a transaction in the AUD-JPY. The Yen was simply too weak and that pair did not present a good selling opportunity. Such opportunity may be present now, using 1H chart. I want to sell it at 82.90, looking for a gain in the range of 40-50 pips. Of course, I will not place the order until AFTER the interest rate announcement, since I want to avoid the initial reaction. If the AUD-JPY rallies, I will follow the price with sell order under the latest minor low.

Mike K.