After last week's poor closing in equities, it will be a very key week in FX for sure. Let's get right to it.

Starting with equities, all major stock market averages were down on Friday. The S&P 500 was off 14 handles (-1.13%) but did manage to close off the worst levels (key support, 1196) of the day. As the chart below clearly shows, we may well be on the verge of a solid push lower - but caution is stressed.

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Add in widening spreads in Europe...

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Source: Barclay's FX

...and you begin to get the picture: the situation is becoming fluid and potentially risk averse.

This bears out when you look at the recent action of EUR/USD - a pair that reflects risk aversion extremely well.

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While this is a compelling chart, both myself and Todd agree that with a bit of ambiguity in the Dollar Index (DXC) count, it may be worth considering the EUR crosses as a way to get a cleaner move. Our last NEW TRADE ALERT a week or so ago was a short in EUR/CHF and it was a big trade for us. It is once again on our radar screens with the 1.3450/1.3500 area very compelling for short positions.

From a longer-term perspective, you will see that Weekly Reversals in EUR/CHF have been a pretty solid predictor for price declines. The chart below illustrates this quite well:

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Add in the weakness seen in AUD/USD last week, the rise in EUR/NOK and the rise in interest rates (10-year Treasury) and the picture begins to tighten up quite a bit.

Stay tuned, this should get real interesting.

For more from Dave, visit Aspen Trading for more updates.