Despite the many stalled or otherwise choppy trends that are scattered throughout the currency market; there are few viable range setups. And, those that we come across are highly vulnerable to a breakout.
[B]How stable is the AUDJPY Range?[/B]
[B][/B]
· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 80.00 (Fib, Pivot)[/B]
[B]-Range Bottom: 76.75 (Fib, SMA, Trend)[/B]
· Even with little background in trading AUDJPY, a quick look at the economic dockets for the both the Australia and Japan reveal little in the way of meaningful catalyst on the calendar. This leaves the pair open to the whiles of far less transparent fundamental drivers. Risk appetite is the obvious rudder for this pair (as it is for most yen and Aussie dollar crosses). There are few cues for when the tides will shift; but it will nonetheless be clear.
[B][/B]
· Looking at the higher time frame technical patterns, the pressure is building for a bullish, AUDJPY breakout. This pair has held a bullish trend since the beginning of February and the complimentary 100-day SMA has pulled support ever closer to recent chop. Resistance is a major Fib and pivot at 80 that may turn into a shoulder in a head-&-shoulder.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Due to the narrow range, we have to place an entry very close to resistance at 79.75.[/B]
· [B][U]Stop[/U][/B][B]: Also due to the limited profit potential, an initial stop at 80.55 is necessarily tight. To secure profit, move the stop on the second lot to breakeven when the first target hits.[/B]
[B][U]Target[/U]: The first objective [/B][B]is greater than the initial risk (120) at 78.55. The second is variable.[/B] [B]Trading Tip[/B] – Despite the many stalled or otherwise choppy trends that are scattered throughout the currency market; there are few viable range setups. And, those that we come across are highly vulnerable to a breakout. Point in case, the few appealing congestion patterns over the past week were in[dollar-based majors.](http://forums.babypips.com/dollar-based majors.) Clearly, the temporarily passive price action that these pairs had established was hiding significant fundamental pressure. The same is true for the yen crosses now. USDJPY represents a range opportunity; but the boundaries of this pattern are ill-defined and any positions will have to play out very quickly. AUDJPY is a little more dangerous from a fundamental standpoint due to the yield differential tying into risk trends; but the setup in price action is a little more tolerable. There is a concise, horizontal congestion pattern that has developed between 80 and 76.75 over the past six weeks; but a little more historical price action gives us an indication of the pressure that is building. There is a rising trend from the February reversal that is already eating into our range. We could see a revival of trend or a pull back that setups up a very inclusive head-and-shoulders pattern. Regardless of direction, potential for price action is very high. As such, a setup (which is only for those that are very risk tolerant) needs to play out quickly. Our entry is very aggressive and the stop is set tight to allow for a first target that can be met within a standard daily range. The second objective is a discretionary call because the trend is coming up quickly. We will cancel all open orders by Friday.
[B]Event Risk for Australia and Japan [/B]
[B]Australia - [/B]After a relatively busy couple of weeks for event-risk traders, the Australian dollar is looking ahead to a very light economic docket. Among the few second and third tier indicators scheduled for release; only the HIA New Home Sales and RBA Financial Stability Review hold any manner of importance. The housing data has suffered a disappointing trend as of late; but the general health of the Aussie economy has overshadowed the underperforming sector. This attitude should help to temper most of the volatility that this data would otherwise generate. The central bank’s assessment of the market’s health is more unpredictable. Policy officials (and data) have suggested that the country has weathered the global financial crisis well. However, this does not mean that the weakness in other corners of the world isn’t still seeping into Australia. Schedule risk aside, the real driver for the currency is undoubtedly risk appetite. Yield demand has maintained its bullish trend this week; but momentum is still a questionable player.
[B]Japan[/B] – In the past few weeks and months, we have seen the Japanese yen slowly losing its status as the market’s favored funding currency. Without doubt, the currency is still considered an ideal counterpart to yield plays; but steady depreciation and record low market rates in the US have [shifted the market’s attention temporarily to the dollar](301 Moved Permanently the market’s attention temporarily to the dollar.). This does not mean that this relationship will last; but while it does, the direct correlation between sentiment and the yen may be skewered. In the meantime, trade and activity numbers will give minor adjustments to growth forecasts. The BoJ monthly report and May meeting minutes will offer more details.