Conditions are still very unfavorable for range based trading. While more crosses and general risk sentiment itself has taken to a holding pattern; there is little respect for hard technical levels and the threat of a true trend revival is high. It is safe to say that those that aren’t comfortable with the greater level of risk should avoid range trading and employ other strategies.
[B]How stable is the EURJPY Range?
• [U]Levels to Watch[/U]:
-Range Top: 131.60 (Fib, Pivot)
-Range Bottom: 129.75 (Fib, SMA, Channel)[/B]
• While the euro is not among the upper echelons of the high risk / high yield field, it nonetheless acts as a straightforward counterpart to the Japanese funding currency. This will keep EURJPY price action interesting as the vagaries of sentiment drivers can spark volatility or trend at the drop of a hat. Outside of this primary driver, the economic calendar is well rounded; but [Thursday’s ECB rate decision](http://www.dailyfx.com/story/bio1/Currency_Market_to_Encounter_Flurry_1254510557490.html) offers the greatest promise for price action.
• There are respectable technicals to work with on this liquid pair; but they don’t exactly hold without some sort of test through volatility. Putting recent price action into context, the late September plunge called an end to a long-term rising wedge. We are consolidating below the former support and the new floor is a confluence of notable patterns near 129.75
[I][B]Suggested Strategy[/B][/I][B]
• [U]Long[/U]: Going against the grain, an aggressive entry of 129.85 is warranted.
• [U]Stop[/U]: A relatively tight range and high volatility means even a 129.25 stop may be insufficient. To secure profit, move the stop on the second lot to breakeven when the first target hits.
• [U]Target[/U]: The first objective is one-and-a-half times risk (90) at 130.75. The second is 131.35. [/B]
[B]Trading Tip[/B][B] – Conditions are still very unfavorable for range based trading. While more crosses and general risk sentiment itself has taken to a holding pattern; there is little respect for hard technical levels and the threat of a true trend revival is high. It is safe to say that those that aren’t comfortable with the greater level of risk should avoid range trading and employ other strategies. That being said, EURJPY’s congestion pattern carries with it considerable risk. High volatility and the return of congestion directly after a major wedge breakout make for a pair that is very choppy, doesn’t hold its levels well and is under considerable pressure. From a fundamental standpoint, this is a pair that may not react to every minor shift in investor sentiment; but it is nonetheless a primary driver. It is difficult to forecast swells in risk trends and recent stability belies the current’s ability to immediately change tempo. A more manageable concern is tomorrow’s ECB rate decision. The group isn’t expected to hike rates; but they can perk speculation as to when they may in fact act. Altogether, it will be important to watch the range through the ECB decision and acknowledge the susceptibility of the pair’s range to volatility by removing all open orders by Friday. As for the suggested strategy; we are looking at a limited range that has produced false breakouts. Our first stop is relatively tight; but that is necessary considering the limited potential for return. Altogether, the [CHFJPY setup drawn up late last week](http://www.dailyfx.com/story/trading_reports/pairs_to_range_trade/CHFJPY_Among_a_Few_Pairs_1254528364881.html) is a more stable alternative to the EURJPY setup. [/B]
[B]Event Risk for the Euro Zone and Japan[/B]
[B]Euro Zone[/B] – Among a range of currencies that have been highly sensitive to the underlying influence of risk appetite, the euro has notably held its own against otherwise dramatic moves. However, this has not prevented the currency from acting as the counterpoint to more responsive currencies. This will likely be the general pace of fundamentals for the world’s second most liquid currency over the coming days and weeks. However, there is notable event risk to account for along the way. Most notable on the docket is Thursday’s ECB rate decision. The central bankers have made a valiant and arguably successful effort to squash speculation of a near-term revival of hawkish monetary policy. Nonetheless, after the RBA’s unexpected hike this week; the market will assume the path has been cleared for those economies well into their recovery. Other timely releases include factory activity and investor sentiment indicators. The regional consumer inflation figure will be particularly interesting as policy officials and investors look for fuel to revive monetary policy.
[B]Japan[/B] – In the absence of commentary centered on currency intervention by the Japanese Finance Minister or a dramatic turn in growth forecasts, the yen will find direction and volatility from investor optimism across the global markets. Currently, the market is concerned over a few big ticket items: growth potential, the timetable for the major of the G20 to return to rate hikes and details on a coordinated stimulus exit plan. These are long-term issues and headway on each will be limited from day to day. In the meantime, domestic event risk could generate low level volatility. The BoJ rate decision may seem a major driver; but their scope is very limited.
