More erratic price action, ugly swings and cleanouts ahead

Well another frantic finish to the Friday session (second week running) with more cleanouts in a thin U.S. market taking place. We saw the EURUSD, Cable, AUDUSD and even USDCHF move as a direct result of some rather interesting USD repositioning coming into the weekend. Suffice it to say it was mainly one way traffic as we saw more buyers of the big dollar emerging. Futures positioning data suggests that EURUSD long contracts were reduced by around 30% last week with more pain to come as USD shorts, on the whole, still remain at hefty levels.

The inference here is that there is likely to be more USD buying ahead this week, and sadly for those trying to trade this market it could well mean more pain as rather than being a relatively smooth one way move, we’re going to be seeing more erratic price action and ugly swings and cleanouts of the kind we have now experienced over the last two Friday evening sessions.

News over the weekend was limited outside of the head of the IMF being arrested on charges of sexual assault, clearly hampering his ability to attend today’s meeting in Brussels to ratify the Portuguese bailout package. The calendar for the day is relatively light as we have the final Eurozone CPI print (no change expected), Empire manufacturing out of the U.S. and rounding out the event risk for the day we have Bernanke speaking in the afternoon.

In regards to levels and/or direction…. Much like Friday, I’m not entirely sure.
As written above, USD purchases are still on the agenda as are, however, headlines that may well disrupt the show.
With that in mind I look for the following over the course of the next day or so;

• EURUSD: 1.4030/00 should contain the downside with good sized bids sitting in and around, while the topside will invariably struggle above the 1.4230/50 levels with 1.4180 being the first hurdle.
• USDCAD: Remains a little better bid, however moves above 0.9730/50 can be faded with stops going in above 0.9830, looking for a return to 0.9590 and lower.
• GBPUSD: Still at the broader mercy of the USD, the downside should be contained around the 1.6030/1.5980 levels while the topside might struggle into 1.6250/80.
• USDJPY: I remain long of the 80 Put for expiry this Wednesday and outside of levels mentioned last week there really is little to add, look for 81.35/50 to 81.80 to cap any upside and stop cleanouts while the downside had decent bids sitting around the 80.30 level and then 79.80.
• USDCHF:Should for the time being be contained to 0.9020/30 and 0.8890.
• XAUUSD: Punters long the yellow metal should be wary of 1,477 as a break here opens quite a move with stops sitting below 1475/65.