Leaving so many, market-moving events behind (the Fed’s Stress Test, ECB rate decision and US NFPs among others); the currency market is finally finding some reprieve from the highly tense setups from last week. However, the tapered event risk has not guaranteed straightforward price action. CADJPY has seen its fair share of volatility over the past few days; but this heightened state of activity nonetheless falls into a well establish technical formation.
[B] Why Would CADJPY Hold a Range?
· [U]Levels to Watch:[/U]
-Range Top: 85.90 (Channel)
-Range Bottom: 80.50 (Channel, Fib, SMA, Pivot)
· There is notable, scheduled event risk on both sides of CADJPY over the coming week; but the actual volatility these indicators generate is likely to be relatively light. While we will keep an eye on Canadian CPI and the first reading of the 1Q Japanese GDP numbers, the real concern for this pair is its [leveraged correlation to market-wide risk trend](http://www.dailyfx.com/story/trading_reports/dynamic_carry_trade_basket/Immediate_Risk_Appetite__Dollar__Stock_1241747671552.html). There is no specific event the entire market is waiting for; but surprises could shift sentiment.
· For more than three months now, CADJPY has developed a very consistent (albeit choppy), rising trend channel. To start the week, we marked a sharp reversal from the top boundary of this formation just short of 86. Now, we are looking down to the eventual test of the lower extreme will an SMA, pivot and Fib set support around 80.00/50.
[I]Suggested Strategy[/I]
· [U]Long[/U]: Half-sized (or smaller) entry orders will be placed at 81.00 to account for moving support.
· [U]Stop[/U]: An initial stop of 79.40 offers a wide stop, especially considering support is rising. To secure profit, move the stop on the second lot to breakeven when the first target hits.
· [B][U]Target[/U][/B][B]: The first objective equals risk (160) at 82.60 and the second[/B][B] target will be set to 85.00. [/B]
[/B] Trading Tip – Leaving so many, market-moving events behind (the Fed’s Stress Test, ECB rate decision and US NFPs among others); the currency market is finally finding some reprieve from the highly tense setups from last week. However, the tapered event risk has not guaranteed straightforward price action. CADJPY has seen its fair share of volatility over the past few days; but this heightened state of activity nonetheless falls into a well establish technical formation. Since the end of January, this pair has developed a rising trend channel with frequent drives to test the moving floor and ceiling to this formation. Are strategy is looking for a return to the lower range of our channel which currently coincides to a serious of technical levels including a 50-day SMA, notable 50 percent Fib retracement and long-term pivot around 80.50. Our entry is set not far above this floor and there is no assurance that this recent down thrust will even reach this extreme; but entering around here is essential to successfully traversing technical and fundamental-driven price action. However, considering this support is on the move, the dynamics of the trade will eventually change; so we plan to remove all open orders by Thursday’s close. Should we indeed find ourselves in an active position, we have to deal with a wide stop to hold with the general pace of price action. And, to counter this exposure, we will cut our position size to at least half normal to reduce our notional risk.
Event Risk for Canada and Japan
Canada – Scheduled, Canadian event risk starts to really pick up its pace by the middle of next week. In the meantime, however, the docket is relatively light. The only notable release due before the weekend is the manufacturing shipments figure for March. This data has implications for both business sector health and export activity; but it is otherwise supplementary to leading gauges like the merchandise trade balance and Ivey PMI. After the weekend, the range of our time frame covers the April Leading Indicators and consumer price index data. The former attempts to offer a leading measure of growth; but traders are rarely impressed by its accuracy. Inflation will similarly be played down as the BoC no longer has the capacity to cut lending rates – though their struggle from here on with monetary policy will take on renewed interest.
Japan – Normally, standard Japanese economic releases have little influence on the direction and pace the Japanese yen takes; but with the world’s second largest economy suffering its worst recession in a quarter of a century and facing questions about its ability to offer safe haven, we have seen fundamental traders showing greater interest. Looking for indicator-based volatility before the weekend; only the current account and Eco Watchers survey rank as potential movers. The likelihood that these reports will drive a major breakout though is very low. The same cannot be said about next week’s GDP release. A forecasted expansion of the economy’s recession could severely undermine the yen’s position as one of the market’s foremost safe haven currencies and significantly chance the currency’s role in the FX market.
[B]Data for May 13 – May 20[/B]
[B][/B]
[B]Data for May 13 – May 20[/B]
[B]Date (GMT)[/B]
[B]Canadian Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
May 15
Manufacturing Shipments (MAR)
[B][/B]
May 12
Current Account Total (MAR)
May 20
Consumer Price Index (APR)
[B][/B]
May 13
Eco Watchers Survey: Outlook (APR)
May 20
Leading Indicators (APR)
[B][/B]
May 18
Consumer Confidence (APR)
[B][/B]
May 19
GDP Annualized (1Q P)
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? You can send them to John at <[email protected]>