[B]My picks:[/B] Short GBPJPY (Range)
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week
Is risk appetite truly on the rise? This morning, the dollar has tumbled against most of its liquid counterparts, equities are rallying, commodities are hitting new monthly highs and high-yeilding currencies are advancing. Despite this ample evidence, however, the yen has held relatively stable. And, it is not just a stubborn hold for one or two of the pairs. All of the crosses have reported a dampened response to the broader market’s demand for yield. This is especially suspicious considering the revision to first quarter Japanese growth down to a record contraction. The yen’s position as a safe haven and the modestly better-than-expected numbers (the forecast was for a 16 percent pace) has likely dulled the markets reaction. For my USDJPY flip from last week, the unusual price action has stalled my position. After narrowly avoiding being stopped out, the setup eventually hit its first target before the second half was knocked out at breakeven this morning.
With risk appetite building, the stalled yen presents considerable risk. Will these crosses follow suit once catalyzed or is this a fundamental shift behind the currency’s position in the market? I don’t think we are such a dramatic change in the yen’s position in the market all at once; but at the same time, I have my doubts about the consistency of this rise in risk appetite. If the rally in the majors and equities stalls, the congestion behind the yen-based pairs will better hold off significant breakouts of their own. This is obviously a risky setup: to fight a potential breakout. So, for my GBPJPY setup today, a frequented range will have to be adjusted for volatility and breakout risk. I will take a half size position to trade from the top of the range. My short entry will be 149.60 and my stop will cover the swing high from the 7th at 151.60. The first stop will equal 147.60 and the second will be more aggressive at 145.60. When the first target is hit, I’ll trail my stop on the second to breakeven. If I’m not executed over the next 24 hours, I’ll cancel the orders as this range is growing more mature with each day (meaning a breakout grows more and more likely).