By: Christopher Lewis
With the EU summit coming up on Friday, the markets have been choppy at best. The trading action is getting tight, and traders simply aren’t interested in going too far out on the risk spectrum as the announcement is coming in just a few short days. The situation in Europe has been driving everything, and this meeting in particular could be it for the EU as several different things have lined up.
The S&P ratings agency has put the region on “credit watch negative”, and is now talking about doing the same thing with the EFSF bonds as well. The agency basically said that a failure to produce a convincing solution at the meeting would result in downgrades, and would possibly impact the ability of Europe to borrow if the other agencies follow suit.
While there are several pairs currently sitting still in a tight range, the one that stands out the most currently in my estimation is the Kiwi dollar. The Kiwi is highly sensitive to risk appetite, and will skyrocket in times of elation, and fall apart in time of despair. The pair is one of the least liquid of the larger pairs, and as such tends to have a fairly decent range per day. Looking at the charts over the last several days, we can see just how it isn’t acting like it normally does.
The chart for the Kiwi clearly shows just how tight the range has been since the impulsive move up. The rectangle outlines the latest range, and this will be the areas that need to be overcome in order for the pair to either rise or fall with any kind of conviction. The interesting thing about this chart is that this bounce has come from a lower low on the longer-term charts, and there is a gap from two weekends ago that hasn’t been filled yet. Also of note it the fact that the area just above seems to be somewhat resistive all the way up to 0.8000 or so. With this in mind, it would seem that the path of least resistance is actually down, but the meeting in Europe will determine whether or not people are willing to buy the Kiwi, or choose to sell it.
