Volatility in the currency market is starting to ease heading into the weekend; but the stability of major technical levels and trends should still be considered highly suspect. For CADJPY, throttling back on the wild price action would leave the pair with a very prominent formation that could hold the market back – or at the very least allow for the easy placement of entry, stops and targets.
[B]Why Would CADJPY Hold a Range?[/B]
[B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 83.00 (Fib, SMA, Triple Top)[/B]
[B]-Range Bottom: 78.25(Fib, Trend, SMA)[/B]
· As it is with all yen crosses, CADJPY will find its direction from the level of risk appetite prevailing in the market. It is difficult to tell when sentiment will pick a direction or what stands as a catalyst for such a broad driver; but the approach of the weekend (and the subsequent absence of major event risk before the liquidity drain) may help to stabilize market and promote range conditions. Speculation surrounding the stress test is the greatest threat.
[B][/B]
· There is a clear, bullish bias behind the CADJPY over the medium-term; which adds risk to and congestion-based strategies. A rising trend channel from the late-January reversal is prominent and now backed by the rising 50-day SMA. However, looking above, we have a triple top, 200-day SMA and long-term 38.2% Fib all falling around 83.00.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 82.50, below the triple top with spread room.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 83.60 will cover the triple top only; because a break can easily take off. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
· [B][U]Target[/U][/B][B]: The first objective equals risk (110) at 81.40 while the second[/B][B] target is set to 80.30. [/B]
[B]Trading Tip [/B]– Volatility in the currency market is starting to ease heading into the weekend; but the stability of major technical levels and trends should still be considered highly suspect. For CADJPY, throttling back on the wild price action would leave the pair with a very prominent formation that could hold the market back – or at the very least allow for the easy placement of entry, stops and targets. However, risk is still high for this pair. As with all crosses that are denominated in yen, dollars or francs; any sudden hiccups in market sentiment could spur dramatic shifts in direction and activity (as we have seen recently). Therefore, our strategy works with the clear technical levels and looks to lessen exposure to loss. As usual with risk positions, we are approaching with a position that is only half our normal size. This allows us to place a stop that provides a significant buffer over our resistance confluence (triple top, 38.2% Fib from the bear wave going back to July and the 200-day moving average). Considering the volatility of the past few days, the first target should be tagged relatively quickly. As such, we will cancel any open orders before Friday’s close or should spot hit 83.75 before we are entered. The second target may take our position into the following week, but this entire strategy should play out by the middle of next week or we could start to run into significant event risk that changes the dynamics of the market.
[B]Event Risk for Canada and Japan[/B]
[B]Canada[/B] – The Canadian dollar is quickly losing its clout as a currency that is positioned to respond more quickly to the eventual recovery in global markets than most of its counterparts. In the past few months, policy officials and central bankers have beat the drums of caution with dour forecasts for the credit markets and growth. After today’s February GDP reading, the projection for the nation’s first recession since 1992 looks far more likely. Going forward, there are few indicators that will definitively set the world’s eighth largest economy on its own recession and/or financial crisis; but there is certainly data that could set milestones to the gradual shift. Looking at the economic docket, most of the notable event risk due for release doesn’t come out until the end of next week. On Wednesday, the Ivey business PMI survey and building permits numbers will take stock of the factory and housing sectors. Far more market moving though is Friday’s labor statistics which have the sway to significantly alter growth forecasts.
[B]Japan[/B] – Japanese economic indicators typically have little sway over the yen’s direction (especially when risk trends are in play); but this week’s data may play at a deeper concern – an economic crisis. There is still some time before the government releases its first quarter GDP numbers; but following up on the first pace of activity in over a quarter of a century through the fourth quarter and warnings of worse for the first three months of 2009; pessimism will dominate. Employment, consumer spending and earnings figures will give a good sense of consumer activity and therefore growth. The BoJ rate decision may also be an unforeseen market mover.
[B]Data for May 1 – May 8[/B]
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[B]Data for May 1 – May 8[/B]
[B]Date (GMT)[/B]
[B]Canadian Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
May 6
Building Permits (MAR)
[B][/B]
Apr 30
Jobless Rate (MAR)
May 6
Ivey PMI (APR)
[B][/B]
Apr 30
Household Spending (MAR)
May 8
Net Change In Employment (APR)
[B][/B]
May 1
Labor Cash Earnings (MAR)
May 8
House Starts (APR)
[B][/B]
May 7
BoJ Monetary Policy Meeting
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]