I’ve been sitting here all day day trying to knit the price action in recent days into some neat tidy package. No luck so far.

And with good reason, it would appear. It’s August, after all. Unlike last August, the worst of the crisis has passed and their is light at the end of the tunnel. Know the market is trying to figure out whether the recovery will be sustain, or merely an inventories/stimulus-led blip in a longer-term downturn. Sentiment will switch on a dime, as we’ve seen so far this week. Monday morning we were all told that we’ll see a vigorous rebound in the second half of this year. Now were told that rebound won’t be sustained. Do we ignore the rebound and focus on the subsequent dip? Or try and trade the rebound and the dip to follow? The market can’t make up its mind.

So what do we do? Sell off to the point (in EUR/USD) where a buyer emerges. China appears to be that buyer. As the market awaits the Fed tomorrow, there appears to be little appetite to take him on. If the Fed explicitly puts an end to its QE program tomorrow, we may have the impetus, but probably not until. If they extend bond buys, look for another leg of USD weakness as new longs bail out of the buck.

EUR/USD, having found a suger-daddy on dips is now rebounding into the 1.4160s. 1.4180/85 is resistance