Strong gains this morning, but I think further volitility nay ensue.

Markets have soared this morning, the catalysts appear to be a rather benign response at the G20 to USD weakness, plus a Goldman's article suggesting QE2 may be much larger than some think. Despite this early rally, I can't help thinking we are likely to see some more volatile and messy action this week, we have a heavy data week this week, then next week we face a landslide of major events, including US Mid-Terms, the FOMC meeting plus the QE2 announcement, and as a side show more economic data including the US payrolls.

With so much facing the markets, despite this morning's strong move, the remainder of the week could be volatile. This should continue to provide short-term trading opportunities for scalpers and intraday traders, as per last week. - Bigger picture the major trend on the SP500 since early September remains on track, however momentum is showing some signs of waning and turning a touch, though at this stage this is secondary to the bigger trend.

The chart below shows the EURUSD, I have highlighted some price action which I believe suggests, that we may see an extended period of consolidation in the EURUSD, even though short-term further gains are possibly likely in the wake of this morning's news.With the rallies in the EURUSD and the SP500 since early September having been pretty well co-ordinated, any consolidation/corrective EURUSD activity could see a similar price action in the SP500 .

My old risk barometer AUDJPY still gives me cause for concern on risk. Whilst this is not a clear signal, it is another factor to keep an eye on (See chart below). Essentially the rally in the SP500 has not been supported by the AUDJPY since mid-Sept. Whilst this is no doubt down to expectations of QE2, this has a strong correlation going back to 2003, see my article on this posted last week, (Can be seen by clicking here).

Overall a strong up day on stocks and weak USD will likely be the theme for the day, however I think markets will remain cautious and patchy this week, I do not think we will see clarity until at least the early November events are out of the way.