This year, we will have general elections on the United Kingdom which will probably generate lots of uncertainty in the form of exchange rate volatility. So currency traders have been increasing their hedging protection against a possible GBP/USD sell-off. Indeed, GBP/USD put options with 1-month to maturity are being bid significantly higher than similar calls. That said, I will be looking for a technical setup to sell-short GBP/USD for 200 pips in profit potential.

For now, stay short the EURUSD below 14200 in order to take advantage of a break lower towards 13650-13750.  Bigger picture, “staying below 14583 keeps the larger trend pointed lower in either a 3rd wave or C wave.  If a C wave, then the decline should extend to the 13650-13750 area.  If a 3rd wave, then the decline likely extends closer to 13000.” 

As mentioned on Monday and last Friday, the US dollar has staged significant breakouts across the majors, and if you are not already long the currency, it may be worthwhile to look for opportunities to do so. For example, NZDUSD broke below its 100 SMA and a falling trendline connecting the Oct. 21 and Nov. 16 highs, the Jan. 8 lows, and the Jan. 21 highs. In an effort to get the best price possible, I’m looking to sell NZDUSD on another test of that trendline, which coincides with the 38.2% fib of 0.7444-0.7093 at 0.7185/7225. Potential targets include the Dec. 23 low of 0.6971 (0.7000) and the 200 SMA at 0.6794 (0.6800). I will likely base my stop on a close above the 100 SMA at 0.7247. One factor that could make or break this trade is the Reserve Bank of New Zealand’s rate decision this afternoon. While no rate change is expected, the central bank’s policy statement has the potential to impact market expectations for future decisions, and thus, the New Zealand dollar.

I’d like to hold my NZD/USD short with a stop above 0.7235 in expectations that the FX carry trade will continue to take a hit on broader risk aversion in financial markets. Given my market view, I’m also quite bullish on the carry funding currency Japanese Yen. Yet I’m currently unwilling to enter into a JPY-long position because it has appreciated too rapidly to make risk-reward attractive. Though I don’t have any set levels yet, I will keep an eye out for JPY buying opportunities through the coming weeks.

I sold USDJPY at 90.14 as the pair broke below support in the 90.21 – 90.57 congestion region after putting in a Dark Cloud Cover bearish reversal candlestick formation at the top of a falling channel that has been guiding the pair lower since April 2009. Prices have started to inch slightly lower and I am looking for building risk aversion to add more fuel to bearish momentum. My initial target remains at 86.28, with a stop-loss will be activated on a daily close above 91.89.

A break below support at 90.37-38.2% Fibo of 84.80-93.79 led me into a short USD/JPY position where I took profit at 89.31-the 50.0% Fibo which is now providing support. I have been looking for a bullish USD/JPY trend to begin but prevailing risk appetite and declining U.S. interest rate expectations have weighed on the pair. That could change today with the FOMC meeting if policy makers take a hawkish tone. Therefore, I would wait for the post decision remarks before determining my future bias as the pair has seen its correlation with U.S. interest rate expectations grow. Conversely, a dovish Fed could lead to further declines but I would wait to take a short position until a move below support at 88.87-12/18 low. However, failure at the level could be the ideal entry point for the long position that I have been looking to execute.

The CAD/JPY extended the decline from the previous week and slipped to a fresh month low of 83.66 during the overnight trade, and I will maintain a bearish outlook for the pair as price action continues to hold below the 200-Day SMA at 85.18. However, as the daily RSI approaches oversold territory and currently stands at 35, the loonie-yen looks poised for a corrective retracement. As a result, I will continue to keep a close eye on the pair, and may look to sell the pair on a rebound.