There is a range of high-level event risk ahead, and the markets are bracing for impact. Given the probability of meaningful shifts in risk and yield assumptions on an ECB rate decision and Friday US NFPs, many traders will be looking to reduce their risk exposure to the possibility that an unfavorable developement can drive the market against established or high-risk speculative positions.

Up first is the ECB rate decision. The array of expectations for this event are wide. Therefore, there is a high probability of volatility as a good portion of the market is likely not properly positioned for the outcome. I believe that the medium-term outlook (weeks ahead) will see the euro lower, but I am going to protect short-term gains. So, I have booked half of my EURUSD short for 101 pips and trailed the stop on the second half to 1.3665 (+50). If there is a bearish response to the ECB's ultimate decision, I will consider adding to the short on a break below 1.3575.

Three other Euro trades I'm watching are EURAUD, EURGBP and EURJPY. I am still short EURAUD and in the money. For relative policy, ECB accommodation plays well against the RBA's tightening. However, I will still cut this position for a smaller profit if it rebounds. I like EURJPY particularly if there is both a large stimulus move and risk aversion kicks in - watching levels of 139.25 and 138. As for EURGBP, this can cater to the pound's yield advantage on a break below 0.8100 and 0.8075, or spell a prime pair should the Euro be in for a rebound above 0.8150 and 0.8175.

Other trades on my radar are those that haven't been in my top teir for a while. I like AUDUSD should it break 0.9200 on a risk aversion move. Speaking of risk sensitivity, CADJPY is leaning against the top of its wedge formation while NZDJPY is heavy on the floor of a multi-year rising trend channel. CADJPY can play either way - but a range cover on a bearish break would be easier to trace out. Same with NZDJPY holding and rebounding. Bigger trend developments are still difficult to develop.

For my long-term positions, the long USDCHF is still doing well, but it is waiting for the medium-term view for the Euro to gain traction. AUDNZD has finally passed 1.1000 and a big step has been put in for confirming a bigger turn effort.

Expect breakouts? Use the DailyFX Breakout 2 strategy to signal or confirm setups.

Sign up for John’s email distribution list, here.

Related Articles
  1. Personal Finance

    Protect Your Home From Medicaid Liens

    Plan ahead for long-term care needs to protect your home and your estate.
  2. Home & Auto

    Avoiding the 5 Most Common Rent-to-Own Mistakes

    Pitfalls that a prospective tenant-buyer could encounter on the road to purchase – and how not to stumble into them.
  3. Professionals

    Chinese Slowdown Affects Iron Ore Market

    The Chinese economy's ongoing slowdown is having a major impact on iron ore demand.
  4. Trading Strategies

    Who Actually Trades or Invests In Penny Stocks?

    Although penny stocks are highly speculative, millions of people trade them daily. Here are 10 different types who do.
  5. Personal Finance

    Financial Analyst Cover Letters That Get You Hired

    Crafting a strong cover letter for a job can increase your chances of standing out from the crowd and landing an interview. Some techniques that help.
  6. Chart Advisor

    4 Stocks Still Flashing Buy Signals

    In the midst of volatility and a big market sell-off last week, these stocks are flashing buy signals.
  7. Taxes

    What IRS Form 990 Tells About a Nonprofit

    Want a picture of an organization's activities? This annual form, open to the public, sums up everything from salaries paid to missions accomplished.
  8. Personal Finance

    Worthwhile Rental Websites (Besides Airbnb)

    The world is your accommodations oyster, thanks to a host of new vacation-geared platforms.
  9. Retirement

    The 3 Most Common 401k Rollover Mistakes

    No one is born knowing the tax rules for 401(k)s and IRAs, but only dummies, scaredy cats and suckers don't buckle down to learn them.
  10. Home & Auto

    Renting vs. Owning: Which is Better for You?

    Despite the conventional wisdom, renting might make more financial sense than you think.
RELATED TERMS
  1. Record Date

    The cut-off date established by a company in order to determine ...
  2. Supply

    A fundamental economic concept that describes the total amount ...
  3. Purchasing Power

    The value of a currency expressed in terms of the amount of goods ...
  4. Investment Banker

    Someone working at an institution raising capital for companies, ...
  5. Yield To Maturity (YTM)

    The total return anticipated on a bond if the bond is held until ...
  6. Gross Profit

    A company's total revenue (equivalent to total sales) minus the ...
RELATED FAQS
  1. Are stocks real assets?

    Stocks are financial assets, not real assets. Financial assets are paper assets that can be easily converted to cash. Real ... Read Full Answer >>
  2. Why would someone change their Social Security number?

    In general, the Social Security Administration, or SSA, does not encourage citizens to change their Social Security numbers, ... Read Full Answer >>
  3. Are spousal Social Security benefits taxable?

    Your spousal Social Security benefits may be taxable, depending on your total household income for the year. About one-third ... Read Full Answer >>
  4. What are the best ways to sell an annuity?

    The best ways to sell an annuity are to locate buyers from insurance agents or companies that specialize in connecting buyers ... Read Full Answer >>
  5. How are non-qualified variable annuities taxed?

    Non-qualified variable annuities are tax-deferred investment vehicles with a unique tax structure. After-tax money is deposited ... Read Full Answer >>
  6. Are spousal Social Security benefits retroactive?

    Spousal Social Security benefits are retroactive. These benefits are quite complicated, and anyone in this type of situation ... Read Full Answer >>

You May Also Like

COMPANIES IN THIS ARTICLE
Trading Center
×

You are using adblocking software

Want access to all of Investopedia? Add us to your “whitelist”
so you'll never miss a feature!