Dollar/Yen Looking Top Heavy; Sell @98.25

DOLLAR/YEN SELL RECOMMENDATION ISSUED

Fundamental Catalyst – We are approaching year end for Japan and quite often leading into the end of the month of March there is significant flow related demand for the Japanese currency on a major repatriation of Yen. This could start to weigh on the pair, particularly at current levels with the market falling just shy of 100.00 recently and looking overdone on a technical basis. Additionally, while the correlations with risk aversion haven’t been as compelling of late, they still are worth paying attention to, especially after a day like Tuesday where equities put in big gains. In the current market environment, any follow through from big up-days in stocks has been frequently met with direct selling, and we see will look for the same pattern today, expecting that flat to lower equities will once again generate some Yen related buying on carry liquidation.

Techs – The pair has been trading with a heavier tone since peaking by 99.70 last Thursday and could be in the process of carving out an hourly head & shoulders top that would ultimately project setbacks to the previous major neckline resistance now turned support at 94.60 (5Jan high). The neckline for the hourly h&s top comes in by 96.55 and we would expect this level to be retested at a minimum over the coming sessions. The 10-Day SMA comes in by today’s current low at 98.25 and the moving average has also managed to prop setbacks for much of the rally out from the 87.15 trend lows in late January. However, this trend looks like it could be on the verge of being compromised and we will look to sell on a break back below today’s low in anticipation of an initial retest of 96.55. Inability to break back below the 10-Day SMA will negate. Strategy: SELL @98.25 FOR A 96.55 OBJECTIVE, STOP @99.25. Stops to be trailed to cost on a break back below 97.90. If trade triggers and 97.90 not broken, position to be closed out at NY close (5pm EST) on Wednesday. Recommendation to be removed if not triggered by NY close on Wednesday.

Written by Joel Kruger, Technical Currency Analyst for DailyFX.com
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