Grinding It Out

We continue to grind it out below the big volume hole as suggested in my previous two updates. Nothing really surprising here and I don’t expect final resolution until Thursday when Draghi announces the ECBs interest rate decision. What’s interesting however is that we seem to be heading into in a pretty rare market phase – a sideways low volatility period:

Well, I should call it sideways depleting volatility really as we’re not in a low volatility phase based on longer term measures. But taken in context it’s clear that volatility has slowed down markedly. Last week this produced a small trend higher which seems to have run its course.

Although an SLV period doesn’t sound very ominous it’s actually a curse in disguise. Remember, just like a good chess player, as a trader you always have to think several moves in advance. For one small gyrations up here will not produce the necessary context for picking entries later on. Secondly if volatility keeps dropping all week then it’s possible that we’ll see an explosive (HV) move following it. That’s all fine and dandy but without much context all we have is the current Net-Lines on the daily and weekly – and that’s a bit lacking IMO.

If we are lucky then we’ll see a transition into an SEV (sideways expanding volatility) period beforehand. Although jarring and sometimes frustrating those swings would help us establish technical context in order to get positioned for the big move.

On the menu today is the AUD/JPY – I’m waiting for a drop toward 87 so that I can grab a long with a stop below 86.6 – perhaps a few pips lower even.

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Cheers,