Without volatility, ranges will constrict, breakouts will be exceptionally difficult to muster and trends will be near impossible. In other words, current conditions make for difficult trading. Expected volatility measures on the FX market are currently at record lows (on the one-week tenor). That puts a distinct halt on risk-based trends and it also curbs the other major fundamental theme: relative monetary policy.

For risk trends, I see plenty of potential - just not fulfillment. A 'risk on' drive is difficult to sustain - even if the lean is bullish - as there is little undervalued premium in the market. Alternatively, the pent up risk aversion plays look good but aren't playing out. Patience is a virtue.

In terms of opportunities for risk averison, there are many. My immediate interest goes to USDJPY, EURJPY and GBPJPY. For the first, I am looking for a break lower in equities and the pair to clear 101. The Euro-based pair is best served with a retracement to a better level. I would consider GBPJPY on a break of 170 if risk aversion adds to a retreat in yield expectations.

Speaking of the pound, the currency has plenty of potential with this week's event risk. If the sterling traders find their hawkish yield forecast reinforced, my interest is limited to EURGBP below 0.8125. On a disappointment that sees the pound retreat, my favored setup is GBPUSD below 1.6750.

My only pound trade heading into this week was the second half of my GBPAUD short which hit its trailing stop on the Aussie pullback for +170. I still have my EURAUD short in place with the euro's own weakness working against the Aussie.

I am still very comfortable with my EURUSD short on the channel floor break. And, both my long-term USDCHF and AUDNZD long setups (top trades for 2014) carry their fundamental support.

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