CADJPY Looks For Another Wave in Its Trend Channel

It took considerable time; but CADJPY has once again bent to the boundaries of its very prominent, rising trend channel. This morning, the reversal has already covered over 75 percent of its range, bringing the opposite extreme of this moving zone into view.

[B]Why Would CADJPY Hold a Range?[/B]

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         ·         [B][U]Levels to Watch:[/U][/B]

         [B]-Range Top:       89.10 (Channel Top, Fib, Range)[/B]

         [B]-Range Bottom: 84.00 (Channel, Fib, SMA)[/B]

         

         ·         [Risk appetite has had a choppy run](http://www.dailyfx.com/story/trading_reports/dynamic_carry_trade_basket/Carry_Diverges_From_Risk_Appetite__1244758222556.html) this past week; but the ebb and flows have not been as straightforward as one would suspect. This morning, risk appetite was on the rise across the spectrum; yet the Japanese yen was extending its aggressive rally won through the previous session. There are few key events that threaten a shift in sentiment through the rest of the week. There is certain data that could stir volatility; but not breakouts. 

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         ·         The reversal that has developed over the past three active sessions has worked well to confirm the bigger picture for CADJPY technicals. The rising trend channel that has directed price action since mid-January is the most prominent formation for this pair. Hard support is called up at 84 on the confluence of the channel bottom, SMA and Fib.

         

         [B][I]Suggested Strategy[/I][/B]

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         ·         [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 84.45 to allow for a better position in the range.[/B]

         ·         [B][U]Stop[/U][/B][B]: An initial stop of 83.25 covers thick support; but a false break is still a threat. 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 (120) at 85.65 and the second[/B][B] target will be 87.65. [/B]

                         [B]Trading Tip [/B][B]– It took considerable time; but CADJPY has once again bent to the boundaries of its very prominent, rising trend channel. This morning, the reversal has already covered over 75 percent of its range, bringing the opposite extreme of this moving zone into view. Currently, bearish momentum is still aggressive on a three-session decline. However, the potential for a breakout on this rally is likely low. Fundamentally, there are no specific events that can directly threaten to force a dramatic shift in risk appetite on their own. Neither does the data scheduled for release over the coming week have the influence to single-handedly decide the Canadian dollar’s or Japanese yen’s future trend. As for the setup, timing is everything. We have set our entry below today’s low to allow for a better risk/reward scenario. This level is not likely to be hit today as momentum this aggressive often finds at least a temporary retracement as the fuel for a trend a new trend is not present. As such, a rebound to retest former support as new resistance around 86 (or higher) is likely. It may take time to trigger; but we will not wait too long for entry. Our open orders will be canceled by the end of the week. A false breakout or dramatic shift in risk appetite is much more likely to take place during and just after the weekend, when the market’s aren’t able to properly react. [/B]

[B]
Event Risk for Canada and Japan[/B]

[B]Canada [/B]– The Canadian dollar is one of the few G10 currencies that does not have a direct plug in to general risk trends. However, this economy has a fundamental background that can be influenced by the abundance or lack of optimism in growth and financial markets. Over the past year, the Bank of Canada has aggressively lowered its benchmark lending rate and deflated the recession blow by offering projections of conditions that were perhaps slightly worse than they actually are. The world’s eighth largest economy is still contracting; but the slump has been much shallower than many of its larger counterparts. As market commentators shift their focus from financial crisis to growth benchmarking, the focus will turn back on to the Canadian economy and its ability to turn to positive growth more quickly and aggressively than its US trade partner. A few economic indicators will help adjust this general forecast modestly. Retail sales for April will gauge consumer health. Consumer spending has been a critical component in staving off a deeper recession than could have developed through exports alone. In other lines, the CPI data due Thursday has lost its monetary policy influence for at least six months and is now a factor for cost of living in the general recovery.

[B]Japan [/B]– There is little doubt that the Japanese yen is the barometer for risk in the currency market. Not liquidity risk; but general sentiment risk. This is where the currency will defer to for direction and volatility when major, scheduled releases are not on deck. Speaking of data, there are a few releases that could have a significant impact on immediate price action and the yen’s general correlation to risk going forward. Tomorrow; the Cabinet Office will release its monthly economic report; and traders will look for comments that support their previous conjecture that the worst of the recession has already passed. For data, the BSI factory and service sector sentiment reports for the 2Q will measure the optimism for a critical group in an export dependent economy.

                                              [B]Data for June 17 – June 24[/B]

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                                   [B]Data for June 17 – June 24[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]Canadian Economic Data[/B]

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                                   [B]Date (GMT)[/B]

                                   [B]Japanese Economic Data[/B]

                                                     Jun 18

                                   Consumer Price Index (MAY)

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                                   Jun 17

                                   Cabinet Office Monthly Economic Report

                                                     Jun 19

                                   Retail Sales (APR)

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                                   Jun 21

                                   BSI Large Manufacturing (2Q)

                                                     Jun 22

                                   Int’l Securities Transactions (APR)

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                                   Jun 23

                                   Merchandise Trade Balance (MAY)