The dense wave of major, market-moving indicators from the global docket is almost past; but the threat of breakouts for the most liquid currency pairs will not let up with the calendar. EURJPY has had an extraordinarily sensitive correlation to general risk trends during the past few months.
[B]Why Would EURJPY Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 137.50 (Double Top, Pivot)[/B]
[B]-Range Bottom: 126.50 (Trend, SMA, Fib)[/B]
· Scheduled event risk from the European docket has come and gone – and the volatility that resulted from the pressing scheduled was otherwise reserved. However, this may actually increase the threat of a breakout for EURJPY. This pair is highly susceptible to risk trends. Now that conflicting event risk has let up, the speculative crowd can once again return to their ruminations on the health of return and volatility.
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· The technicals on a EURJPY are relatively feeble. Starting with the long-term view, it is clear that the bullish bias is still supporting the upswing that has developed since the beginning of the year. Medium-term we have a double top at 137.25/75 that coincides with a modest pivot. And, just over the past week, we have seen a 200-point band develop.
[B][I]Suggested Strategy[/I][/B]
[B][/B]
· [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 137.10 for better risk reward ratio.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 138.35 is wide enough to cover the volatility in a false break. 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 (125) at 135.85 and the second[/B][B] target will be 132.55. [/B]
[B]Trading Tip – [/B]The dense wave of major, market-moving indicators from the global docket is almost past; but the threat of breakouts for the most liquid currency pairs will not let up with the calendar. EURJPY has had an extraordinarily sensitive correlation to general risk trends during the past few months. Taken along with this pair’s usual tempo of high volatility and it is clear that looking for a range is a risky venture. Both the long- and medium-term bias behind this market is bullish. Recently, however, demand for yield has been sidelined in respect of significant event risk. This sentiment has coincided with technicals that have produced a 200-point congestion zone as a slowly-formed double top with the April 6th swing high. Still fighting the current, the setup is essential. Our strategy looks for entry very near the top of this week’s range; so that a stop can be set wide enough to cover a surge in volatility that produces most false breakouts. This is still a highly risky position even with the setup; so we have cut the position size in half to reduce the potential notional loss. Spot is currently above our entry; so this entry should trigger soon. We will cancel all open orders before liquidity drains on Friday or should spot hit 138 or 135.25 before we are entered on the trade. Ideally, the first target should be met before the weekend to adjust the risk profile before we head into potential gap territory.
[B]Event Risk for Euro Zone and Japan[/B]
[B]Euro Zone –[/B] The euro’s attachment to risk trends is difficult to gauge. However, the increased interest in sentiment has clearly placed the currency in the risk-hungry side of the market. This is supported by a number of factors; but is primarily rooted in the relatively high yield the ECB has been able to conserve and European officials cautious approach to policy during the crisis (which puts them ahead of the curve should global conditions confirm a genuine turn around or leave the region exposed should a second wave build). The Euro Zone policy authority maintained its yield advantage today when the group decided to keep its benchmark at 1.00 percent and President Trichet said that they were not necessarily considering an expansion of their 60 billion euro purchasing plan (though neither would he write it off as a possibility for the future). Scheduled event risk going forward is very light; which suggests speculation on the pace of recession and the return to financial stability will dominate going forward.
[B]Japan –[/B] Despite a record breaking economic slump, officials from both the Bank of Japan and Cabinet have forecasted the worst of the recession was now past the island nation. This has yet to pan out however and such optimism will counter fundamental traders’ positions until data pans these ideas out. Looking out over the coming week, economic data will help little in addressing this big ticket issue. The current account balance, Eco Watchers survey and consumer confidence reports are all timely; but are showing only modest divergence from record declines. The GDP number expected next week is influential enough; but it is lagging as a final reading. Risk trends will be the undisputed driver of price action for the yen over the immediate future.
[B]Data for June 5 – June 12[/B]
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[B]Data for June 5 – June 12[/B]
[B]Date (GMT)[/B]
[B]European Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Swiss Economic Data[/B]
Jun 8
EZ Sentix Investor Confidence (JUN)
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Jun 7
Current Account Balance (APR)
Jun 8
German Factory Orders (APR)
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Jun 8
Eco Watchers Survey (MAY)
Jun 9
German Industrial Production (APR)
[B][/B]
Jun 10
GDP (1Q F)
Jun 12
EZ Industrial Production (APR)
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Jun 12
Consumer Confidence (MAY)