Currencies, commodities, and stocks remain tied to risk aversion. Although currency charts have resumed responding to technical and fundamental pressures to some degree, that response can be derailed by a flash of trouble on the global financial front.

The risk events looming on the forex trading market’s horizon won’t be found on the average fundamental economic calendar. They are the quarterly earnings results for the major financial and industrial corporations traded on the world’s bourses, and the results of the financial “stress tests” being performed on banks by the U.S. Treasury, although the release of those results has been delayed until after earnings season, to prevent (or at least delay) a negative stock market reaction.

The possible bankruptcy of General Motors has been bandied about for several months now and has therefore gained some amount of market acceptance. Although markets would react in now typical risk-averse fashion should GM fold, this is no longer the powerful potential shock it was a few months ago and the level of that market reaction would be muted in comparison.

No one expects corporate earnings from 1Q2009 to be good. Rather, the questions are, how poor will they be? and how much bad news will the current spate of investor optimism bear? Considering that this rally was initiated, not by good economic news, but by a few fundamentals printing not quite as poorly as expected, one can therefore argue that either investors are willing to shrug off the poor to reach the silver lining, or that there isn’t much basis supporting this optimism and it can vanish as quickly as it appeared. The first reaction will at worst see global stock markets consolidating at their current levels; the second will see the rally transformed into a dead cat bounce with renewed downtrend pressures on stocks and commodities.

For the forex trading market, either reaction should cause some currency volatility and potentially profitable trades. However, the optimistic one will see additional strength in fundamental and technical pressures, while the pessimistic one will see a resurgence in risk aversion trading with its very different set of rules, including safe-haven flows into USD and JPY at the expense of EUR and the commodity currencies, CAD, AUD, and NZD.

Perhaps the earliest indicator among currency pairs for judging this market reaction will be AUD/JPY, that direct reflection of investor confidence despite the decline in Australia’s interest rate. Since 4 November 2008, AUD/JPY has been consolidating above support at 55.50 and beneath a down-sloping trend line drawn off the high of 70.51, as shown on the daily chart below:

On 23 March 2009, it broke convincingly above this line and initiated a brief and ragged uptrend, illustrated below on the four-hour chart:

Currently, AUD/JPY is consolidating between support at 70.60 and resistance roughly at 72.15, as shown below on the 30-minute chart:

Although downward pressure is evident on this chart, with progressively lower lows finally breaking beneath the 200-MA, the current pattern is again consolidation as stock market bourses waver between optimism and pessimism. An optimistic response may see AUD/JPY consolidate further and perhaps resume its uptrend; a negative one could see it fall beneath support at 70.60 and perhaps return to its earlier range between 68.50 and 55.50.