A Momentous CADJPY Selloff Still Within Technical Confines

[B]My picks:[/B] Long CADJPY
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week

The Japanese yen has put in for an aggressive rally across the board the past four active trading sessions. However, the usual catalyst for such an aggressive move in this particular currency’s favor (risk aversion) has been relatively lax. This sharp decline made quick work of my AUDJPY breakout setup from last week. Following the market’s bias, I was waiting for a break above the mid-point of the July to October plunge at 79.65 to signal the next upthrust on a well-established bull trend. However, the market would immediately struggle and was not able to set a daily close above the closely watch 80 level. Come Monday, the pair was set on a step reversal; and I was stopped out.

Looking at the yen crosses this week, momentum is still backing this typically safe-haven currency. However, many of the liquid pairs are coming upon support. What’s more, the fundamental drive for this move has long been lacking. There is little momentum behind an unwinding of risk and the Japanese economics are far from encouraging on their own. The extended run this currency has made could easily find at least a temporary rebound and a solid technical floor can further bolster expectaitons of a turn. Looking for the right mix, I am drawn to CADJPY. This pair has tumbled over 500 points in a matter of a week; and yet it still fits within a very prominent and mature rising trend channel. There is Canadian event risk in CPI and retail sales numbers; but the real threat to a breakout will come through risk trends. I will set my entry on two (half my normal size) lots at 84.20. The initial stop on both will be 83.00. The first target will equal risk at 85.40. The second objective will be 87. For trade management, I will move up the stop on the second half of my position to breakeven when the first half takes profit. If momentum is indeed over-extended, the first objective should be met relatively quickly.