Trade Quality Not Trade Quantity Is The Hallmark of Success

In a year like 2019 where FX traders continue to face a market with declining volatility (see JP Morgan Global FX Volatility chart below), periods like we are experiencing now, (trade wars, headline risk, limited follow-through on moves) only adds to the frustration.

The FX options market to continues to price in low volatility price action.

As I been telling clients many times recently, low volatility does certainly mean LESS trades, but there are still good trades out there if you are patient. Here are some technical set-ups that are worth keeping an eye on.

Dollar Index (DXY) - FX traders, just like equity traders, need a gauge that offers a decent overview of where prices are heading on the underlying components.  DXY is that gauge. I remain bullish overall but price action remains very grinding in nature. there are not any quick pops up or down to capitalize on. Steady as she goes.... don't fight the trend, just be patient.

• EUR/USD - given that 57% of DXY is made up of EUR/USD, it goes without saying that as DXY goes, EUR/USD (in the opposite direction). For now though, EUR/USD pretty messy with lots of back and forth choppy price action. I would look to other pairs at this time. Trying to guess which way the next sustained move goes is like flipping a coin.

• AUD/USD is one of those technical set-ups that can give you a pretty robust trade with solid reward/risk. Yes, it is always VERY hard to call a bottom or a top, but once in a while, pieces come together that can strengthen one's conviction. In this instance I see the following:
  • A potentially completed Wave B that unfolded as an ABC corrective pattern.
  • An impulsive thrust (5-waves higher) higher off the recent lows on the heels of the Australian election
  • An options market that seems to be heavily positioned with puts, possibly leading to a mean reversion of sorts. 

The shorter-term chart of AUD/USD to is encouraging. However, with a rather weak S&P 500, AUD/USD upside could be limited. Ideally, the next thrust higher will coincide with stronger S&P's too.

• NZD/USD is in a very similar situation as NZD/USD, absent the thrust higher on the Sunday open. Nonetheless, a potential completion of an ABC correction into the .6500'ish area might serve as a decent place to build/establish longs.

Until my next update later this week, all the best with your trading.

Dave