Trying to gauge the direction and intensity of sentiment for the broader markets is perhaps the most difficult endeavor for a currency trader. However, therein lies nearly every trading opportunity the market has to offer. USDJPY is especially sensitive to this fundamental current.
[B]Why Would USDJPY Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 98.85 (Fib, Trend)[/B]
[B]-Range Bottom: 94.25 (Fib, Pivot)[/B]
· The [economic dockets](http://www.dailyfx.com/story/topheadline/Dollar_Gains_As_Japanese_Officials_1244800678160.html) from either side of USDJPY are relatively light. Among the list of scheduled releases, only the Japanese BSI, US current account and US housing starts figures truly threaten volatility. As usual, the real influence on price action will no doubt come from general risk trends. Risk appetite has edged back into its positive bias this past week; but the G8 meeting taking place today and tomorrow can quickly change things.
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· There are a number of technical patterns that are conflicting with each other for USDJPY. The most prominent formation over the past three months has been the head and shoulders formation that hit a peak at 101.45. However, the neckline at 94.25 has since held up and another rebound has since been stalled by a long-term trend and fib confluence.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 98.35 which is well within the week’s range.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 99.35 does not cover the May highs; but we want to balance risk and time. 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 (100) at 97.35 and the second[/B][B] target will be 95.75. [/B]
[B]Trading Tip – [/B]Trying to gauge the direction and intensity of sentiment for the broader markets is perhaps the most difficult endeavor for a currency trader. However, therein lies nearly every trading opportunity the market has to offer. USDJPY is especially sensitive to this fundamental current. Two safe haven currencies have to be separated by more critical factors that dampen modest shifts in risk appetite to garner direction only when optimism or pessimism reaches an excess. Technically, conditions are favorable for a range setup. While the head-and-shoulders formation of the past four months is drawing up an unusual continuation; resistance is firm around 98.85. Nonetheless, we must approach this from the perspective of risk; and a breakout is possible considering the bullish bias of the past four weeks. Our position is setup such that the first target is within reach of a single day’s range; but our stop must therefore be set relatively tight. Even though our notional risk is defined by position sizing, a technical stop above 99.75 would match up with the shoulder line in the aforementioned pattern. Nonetheless, we are concerned about timing (for entry and exit). Therefore, we will cancel all open orders by Monday’s close or should spot hit either 99 or 97.20 before we are entered. Waiting to see price action on Monday’s open is also advisable.
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Event Risk for US and Japan[/B]
[B]US – [/B]Scheduled economic event risk from the US docket has tapered off over the past week. Looking ahead, the docket once again is expected to produce little in the way of market-moving event risk. For influence, most of the notable releases will filter through price action by adjusting expectations for long-term growth. Wednesday’s first quarter current account balance is the most commanding piece of data; yet it clearly lags the GDP numbers that have already been well documented. Indicators like housing starts and industrial production will present more timely numbers to work with; but their impact on forecasts for economic recovery is questionable. Straying from the confines of data, speaking engagements for policy officials on the health of the economy and financial markets will help market participants benchmark their expectations and perhaps give a look into future policy efforts. Another critical influence will be the general level of sentiment in the financial markets. Will the G8 discuss the ballooning US deficits and the dollar’s role as reserve currency?
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Japan – [/B]Risk trends are without doubt the primary driver of the Japanese yen over the coming week. The greatest concern for sentiment is the G8 finance minister meeting that begins today. While there is a low probability that they will release commentary that could trigger volatility in the market; any rhetoric that does come out of the meeting could revive direction on a very prominent trend that has just recently died down. Mention of government exit plans from their financial bailouts, replacing the US dollar as a reserve currency, what to do with toxic debt or the impact of massive budget deficits could generate fundamental volatility. In other news, the economic docket may attract attention of its own. A rate decision and policy officials’ growth assessments will be closely watched.
[B]Data for June 14 – June 21[/B]
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[B]Data for June 14 – June 21[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japan Economic Data[/B]
Jun 15
Net Long-Term Net TIC Flows (APR)
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Jun 16
BoJ Rate Decision
Jun 16
Housing Starts (MAY)
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Jun 17
BoJ Monthly Report
Jun 16
Industrial Production (MAY)
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Jun17
Cabinet Office Economic Report
Jun 17
Current Account Balance (1Q)
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Jun 21
BSI Large Manufacturing (2Q)