The market is risk-on right now, but don't expect it to last.
For the next 48 to 72 hours, the markets are trading positive on the following: (no laughing out loud)
1. Hope for US politicians to make sound decisions on fiscal cliff.
(Read more: What Is the Fiscal Cliff? CNBC Explains)
2. Hope for European politicians to make sound decisions on Greece.
3. Hope for the US housing market will hold up despite slowing US growth.
4. Hope for structural changes to the Chinese economy with new leadership.
5. Hope for diplomatic efforts to reduce tensions in Middle East.
Given all this, we can add that Fed Chairman Ben Bernanke will be speaking today and espousing his new QE. All of this makes for a rally in risk and a drop in the US dollar likely over the next 3 days. A good example of the market shrugging off problems is what happened last night after Moody's downgraded France: EURUSD held support at 1.2760 and then rallied above its 200-day moving average at 1.2808.
However, next week the markets will face discussions on the fiscal cliff and US data releases that include data impacted by Hurricane Sandy. There's a very good chance that we'll reverse what happens this week. Yesterday, the S&P hit my target rally point of 1,382 and closed at 1,387. Clearly, I didn't expect that to happen right away. Both the EURUSD and the S&P 500 are trading around their 200-day moving average and are making trading difficult. Overall if you want to put trades on, please use tight stops and smaller trade size.
Here's my trade today for CNBC's Squawk on the Street:
- Entry 1.2825
- S/L 1.2875
- T/P 1.2575
I want to use this opportunity to sell a rally in the EURUSD as I think it will go lower as we head into the weekend and into next week. I realize I'm sounding like a broken record as I continue to sell the EURUSD, but it has worked extremely well. I want the market to prove me wrong before I switch gears.
Andrew B. Busch Director, Global Currency and Public Policy Strategist at BMO Capital Markets, a recognized expert on the world financial markets and how these markets are impacted by political events, and a contributor to CNBC's Money in Motion Currency Trading. You can comment on his piece and reach him here and you can follow him on Twitter at http://twitter.com/abusch .
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