Future increases in rates are decided by the FED based on the economic data alone, giving the market a reason to run rampant. As a result, we saw a lot of volatility during the second half of last week. It looked like the market was amped on steroids, making 400 pip up-and-down moves. Recently, these moves were witnessed in the Euro downtrend, but at least the logic was justified and the move was one-dimensional. With no justification, the human emotions have taken over and crowd psychology is moving the market.       

A perfect example of this chaos was when the US inflation (CPI) data was released today. The US Dollar went up immediately for about 40 pips against all the currencies, only to return these gains back the next half hour and further decline another 50 pips. That wasn´t all – in the next two hours USD rallied again for about 100-150 pips, depending on the pair. The earnings declined, but the inflation came out better than expected, which makes the data slightly positive. That shows that the market doesn´t really know how to react unless the economic data is biased. .  

All this makes it very dangerous to trade during such times. The wisest thing is to trade the forex crosses and take a break from trading the US Dollar, or at least minimize the lot positions. So we decided to sell GBP/JPY at 178.65 because the GBP looked like the weakest link – sure enough we received 60 pips from that trade. We were also planning to buy EUR/GBP at the 20 moving average in the hourly chart, but hesitated too long and missed the opportunity. If it gets close to that MA again we will definitely open a buy signal there. We won´t eliminate the USD from our trading focus completely, but we´ll be very careful and wait until the market forms top or bottom-heavy before opening positions.