There are a number of gap close plays to consider but the Dow is front and center for me because of the risk implications. If the market keeps the gap close ceiling, we're looking at pressure on equities bulls and perhaps a resumption of the move lower that accelerated Friday. How much of the news from Europe is baked into the cake? Most of it but is there a really a reason to rally beyond the technical bounce of a gap close. Likely no. The past of least resistance remains down so I'll hang onto my AUD/CAD, AUD/USD shorts as well as look for more shorting opportunities in the EUR/GBP and AUD/JPY.
For now there's seems to be some lethargy in the Dow's movement and therefore the risk environment - near term - is pretty flat. The 12,950 to 12,960 level will be the area to watch to see if the bears can retain control of sentiment here. Since my plays are overall risk off entries, this will be important resistance for follow-through.
The Dow seems content to have closed the gap and now gravitates around the 12,950 to 12,960 ara on the YM futures contract.
I should mention that the U.S. Dollar Index has yet to close it's gap, take a look...
The U.S. Dollar Index could see another push lower if the bears are willing to pressure the market into a dollar gap close. Be wary of getting too heavy in dollar-weakness plays on such a move!
For traders wondering where the EUR/USD selling will come back in, a clear risk off signal from the Dow could be part of that conversation. The other consideration? A gap close at 1.3088. Look for weakness in the EUR/USD between the minor 1.3080 and major 1.3900 psychological levels.