The currency market is still lacking a course on general risk appetite. This has recently led to a retracement of those moves tied to a rally in sentiment from yesterday; but for the broader view of the market, the hesitancy is threatening to unravel steady recovery trends from many of the FX space’s most liquid pairs. EURJPY is one of those crosses at risk of losing its footing; yet conditions are still the larger trends favor and recent price action could present a clear (though risky) range setup.
[B]Why Would EURJPY Hold a Range?[/B]
[B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 1.4975 (Triple Top, Fib)[/B]
[B]-Range Bottom: 1.4600 (Fib, Trend, SMAs)[/B]
· There is little doubt that [general risk sentiment](http://www.dailyfx.com/story/trading_reports/dynamic_carry_trade_basket/Traders_Are_Taking_Greater_Risk_1239320840344.html) is the primary instigator for fundamentally based price action in EURJPY. The Japanese currency, though losing some of its pull through a staggering recession, is still considered one of the dominant safe havens in the market. Alternatively, there euro is heavily dependent on a rebound in risk appetite. Troubles in the European markets threaten to hit critical mass as sentiment and credit hold pace.
[B][/B]
· Range traders more often than not develop in the midst of larger trends. As such, it follows that the probabilities of a successful trade increase when a range setup falls in line with the dominant bias in the market (essentially putting a breakout in our favor). We are looking to hold with a dominant rising trend which is backed by a confluence of support levels.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Long[/U][/B][B]: Half-size (or smaller) entry orders will be set at 131.40 – more aggressive with each day.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 130.00 is notionally wide enough to cover the trend, but not high volatility. 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 (140) at 132.80 and the second[/B][B] target will be 134.20. [/B]
[B]Trading Tip [/B]– The currency market is still lacking a course on general risk appetite. This has recently led to a retracement of those moves tied to a rally in sentiment from yesterday; but for the broader view of the market, the hesitancy is threatening to unravel steady recovery trends from many of the FX space’s most liquid pairs. EURJPY is [one of those crosses at risk](http://www.dailyfx.com/story/currency_crosses/currency_crosses/Yen_Crosses__Expecting_Tops_and_1239225028942.html) of losing its footing; yet conditions are still the larger trends favor and recent price action could present a clear (though risky) range setup. Considering the fundamental influences behind this pair are largely ill-defined but highly volatile (earnings session, results of the bank ‘stress test,’ fragile sentiment), there is little to do but default to technicals. In looking for a long near 131 support, we are holding with a mature trend while working with a level that stood as range resistance for nearly five months. It is not a stretch to call this a significant level; and such trends will not easily undone. What’s more, the clear technicals offer straightforward levels for setting up entry, stops and targets. At the same time, it is still important to realize this is a highly risky trade. Our strategy is looking to reduce position size considerably and the stop is set relatively wide. Alternatively, our targets are set within the recent swing high to avoid a potential head-and-shoulders formation. We will cancel all open orders by tomorrow or should spot drop to 130.20 or up to 133 before the entry orders are triggered.
[B]Event Risk for Euro Zone and Japan
[/B]
[B]Euro Zone[/B] – After an ECB rate decision crossed the wires and the market closed shop for extended holiday period this past week, we have seen scheduled event risk for the euro clear out. Looking at the listings for the days ahead, there are only a few that could realistically threaten volatility (and have only a modest chance at forcing a breakout). From the Euro Zone docket, the CPI figures for March and construction activity report for February are the only noteworthy figures. The former could help develop interest rate expectations (which are biased towards forward cuts to come), while the latter will be a lagging read on a vital sector for growth. For timeliness, the German ZEW survey will offer the sentiment for the most influential economic group of the moment: the investor. Outside of the clearly defined boundaries of economic releases, the euro will follow any develops in financial conditions in the Euro Zone and Eastern Europe. Many market participants consider a localized financial crisis to be the next shoe to drop for the euro.
[B]Japan[/B] – Though the Japanese yen is no longer the undisputed safe haven currency the market has to offer, it nonetheless retains its seat among the top three. As such, the yen will track the health of general risk appetite. It is difficult to forecast what could be a major market moving event in the future; but there are a few lingering threats that could catalyze into a more influential market driver. Among the most ominous hazards is earnings session in the US. Optimism in the capital markets is fragile; and a dose of reality in which earnings are crashing could dramatically change the market’s course. What’s more, with a market focusing on the pending results of the ‘stress test’ on American banks, a sudden announcement or contributory earnings number could amplify volatility.
[B]Data for April 15 – April 22[/B]
[B][/B]
[B]Data for April 15 – April 22[/B]
[B]Date (GMT)[/B]
[B]European Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
Apr 16
Euro Zone CPI (MAR)
[B][/B]
Apr 16
Tertiary Industry Index (FEB)
Apr 17
Euro Zone Construction Output (FEB)
[B][/B]
Apr 17
Consumer Confidence (MAR)
Apr 21
German ZEW Survey (APR)
[B][/B]
Apr 21
Merchandise Trade Balance (MAR)
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]