Trading Video: EURUSD or GBPJPY – Which is the Better Risk Correction Setup

Talking Points:

• Though the S&P 500's bull run is still in place, the momentum through the end of last week fizzled out

• A correction - not reversal - is a high probability scenario and many FX pairs are exposed

• On the monetary policy front, GBPUSD and GBPJPY are wading into potential breakout territory

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The euphoric bid on risk trends through the end of last week following ECB stimulus push and NFP beat flat-lined to start the week. While the S&P 500 - the model for speculative appetite - is clinging on to record highs, the lack of big-ticket fundamental catalysts and lack of risk premium to fade suggests a correction is a high probability. A pullback in an excessive risk lean does not readily translate into a full-scale risk aversion move, but there is still significant trade potential to such a move. Fitting the context of more range bound circumstances in financial markets, pairs like GBPUSD, GBPJPY, AUDUSD and USDJPY are well positioned. Should the intensity pick up, EURUSD could make an effort to clear 1.3550. If risk aversion truly kicks in, we will be awash in opportunity. We look at the more likely scenarios first and work our way out in today's Trading Video.

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