Congestion is a common site across the dollar-denominated majors. With economic calendars thinning out, wide swings in risk trends ebbing and a market holiday for much of the western world on Friday; conditions for range-based trading are improving. Further narrowing the field down, USDJPY looks to have the fundamentals and technicals to support a strong, short-term range setup.
[B]Why Would USDJPY Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 101.50 (Fib, Triple Top)[/B]
[B]-Range Bottom: 99.45 (Range Low)[/B]
· In the past, USDJPY has exhibited heightened sensitivity to fluctuations in broad trader sentiment. However, this pair may be losing its fundamental volatility as the back and forth in risk appetite dies down into the end of the week and debate over the preferable safety currency between the two continues. Since both Japan and US hold similar rates of return, are extending fiscal deficits and see dour economic futures, trends will be dampened.
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· While most of the majors have stalled over the past 24-48 hours, USDJPY has one of the most promising technical formations. Late last week, bulls were finally able to clear major resistance at 99.50 (defined by a major Fib and 200-day SMA). Former support is now new resistance; while a Fib and SMA will encourage trend continuation.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U][/B][B]: Entry orders will be set at 99.55 for a very aggressive entry on a short-term entry window.[/B]
· [B][U]Stop[/U][/B][B]: With an initial stop at 99.00, we have a buffer on support but not for 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 (55) at 100.10 while the second[/B][B] target will be 100.80. [/B]
[B]Trading Tip[/B] – Congestion is a common site across the dollar-denominated majors. With economic calendars thinning out, wide swings in risk trends ebbing and a market holiday for much of the western world on Friday; conditions for range-based trading are improving. Further narrowing the field down, USDJPY looks to have the fundamentals and technicals to support a strong, short-term range setup. For price action, chop developed shortly after the pair produced what would be considered a significant, bullish breakout. Therefore, depending on how long the market drifts along; the USDJPY’s pull back could be held up by former resistance at 99.50 and trend development can pick up where it left off. Volatility and direction however will ultimately be the product of event risk. There are few indicators on the dockets – and even fewer with market moving potential. General risk sentiment will define the USDJPY’s trend; but we have seen the fallout from the G20 statement has been relatively mild so far. What’s more, since both Japan and the US are more or less in the same economic condition, the pair’s sensitivity to risk will further be reduced. Regardless, there is always risk. Ranges in the majors are extraordinarily tight; and market conditions are difficult to forecast when liquidity dries up on Friday. Therefore, this must be a quick setup with clearly defined levels. Our suggested strategy has an aggressive entry for a wide stop and reasonable objectives. Nonetheless, we will cancel all open orders by mid-US session. We will further cancel our orders should spot hit 100.20. Finally, we will take profit on an open position before Friday’s close as breakout potential will be revived after the weekend.
[B]Event Risk for US and Japan[/B]
[B]US[/B] – Often the primary driver for any pair it is listed against, the US dollar is looking to a relatively light docket of scheduled and unscheduled event risk over the coming week. From the calendar, top releases include the minutes from the FOMC’s last rate decision, trade balance figures from February and retail sales due next Monday. However, each of these events is undermined in some way by market expectations. The Fed has already admitted the dire situation the economy is in and has exhausted policy efforts; trade improves with lower domestic consumption and prices; while consumer spending leads the domestic recession.
[B]Japan[/B] – Like the US dollar, the Japanese yen’s primary fundamental driver remains its correlation to risk trends. However, the connection isn’t as straightforward as it used to be. No longer is a general tumble in trader optimism and a selloff in equities a clear signal that the yen is rising. Fundamental support has long been lacking the currency’s status as a safe haven; but the extent of the economy’s recession and the lagging response from the Japanese government has offered real reason to doubt. The relationship between the yen and sentiment will be the bigger fundamental quandary; but there is some event risk that could offer modest volatility. Machine and machine tool orders will gauge manufacturing; lending figures will follow credit; and the cabinet report will gauge growth.
[B]Data for April 9 – April 16[/B]
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[B]Data for April 9 – April 16[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
Apr 8
Fed Minutes
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Apr 8
Machine Order (FEB)
Apr 9
Trade Balance (FEB)
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Apr 9
Bank Lending Banks Adjusted (MAR)
Apr 11
Markets Closed For Good Friday
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Apr 13-17
Cabinet Office Monthly Eco Report
Apr 14
Advanced Retail Sales (MAR)
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Apr 16
Tertiary Industry Index (FEB)
[I]Questions? Comments? You can send them to John at <[email protected]>. [/I]