As a pair that is renowned for its volatility and sensitivity to risk trends, GBPJPY must be treated carefully when setting up a range scenario. This is particularly the case this week with event risk as prominent as the G20 summit scheduled on Thursday. This event will likely define price action before, during and after comments trickle out of the meeting.
[B]Why Would GBPJPY Hold a Range?[/B]
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 145.00 (Trend, SMA)[/B]
[B]-Range Bottom: 135.00 (Trend, Fib, SMA)[/B]
· The currency market is in the calm before the fundamental storm. Major event risk is scheduled for the latter half of the week with Thursday’s G20 summit in London holding the greatest potential for volatility. Given this pair’s correlation to risk appetite, this meeting’s focus on a possible coordinated response to the global financial and economic crisis could amplify shockwaves in through this pair. Outside of this single event, we will also see substantial data from each economic docket.
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· Short-term charts show extreme volatility and long-term offers a [choppy attempt at a potential reversal](http://www.dailyfx.com/story/currency_crosses/currency_crosses/Yen_Crosses__Additional_Upside_before_1238011364702.html). However, our time frame offers a rising trend channel with enough technical support and resistance to offer a reasonable range setup. A floor is set up by a rising trend, 50-day SMA and Fib.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: Half-size (or smaller) entry orders will be placed at 135.60 – below today’s intraday low.[/B]
· [B][U]Stop[/U][/B][B]: Our initial stop will be set at 134 covering the confluence of support, but not 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 (160) at 137.20 and the second[/B][B] target will be 140.60. [/B]
[B]Trading Tip[/B] – As a pair that is renowned for its volatility and sensitivity to risk trends, GBPJPY must be treated carefully when setting up a range scenario. This is particularly the case this week with event risk as prominent as the G20 summit scheduled on Thursday. This event will likely define price action before, during and after comments trickle out of the meeting. Beforehand, price action is likely to settle and congestion will be favored over breakouts (as traders will want to avoid undue risk). This is the best scenario for our GBPJPY range. A rising trend channel that has been in place since the late-January reversal, this formation does not have an aggressive slope and is backed by qualifying technical indicators. Nonetheless, this is a dangerous pair to trade even on normal days; so our strategy must reduce risk. Our first step is to lower notional risk by cutting position size at least in half. Furthermore, stops have been placed well below the trend, but not wide enough to hold up to a volatile false break like the one back on March 12th. We will close all pending orders before the start of the London session on Thursday. Furthermore, for existing positions, we will move stops up to lower risk (pushing the cutout point to breakeven should the pair be in significant profit by that time). This is a strategy only for the risk tolerant.
[B]Event Risk for UK and Japan
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[B]UK[/B] – It is perhaps appropriate that London will host the G 20 summit on April 2nd as the UK has been pegged by many to be the worst performing industrialized economy in 2009. This means that the British economy and its currency stand to benefit the most from a proactive outcome that spreads the burden and responsibility of a financial rescue evenly across the major economic players. Coming to such an agreement will be very difficult however. Tangible policy points that point to a coordinated effort would beat the odds and give the sterling a fundamental boost. Otherwise, hope for a near-term recovery from the nation’s deep recession will be put off. Looking at outside of the G20 meeting, there will further be a substantial round of event risk to cross the wires throughout the week – though its impact on price action will be skewed by the presence of the summit. Of note over the coming week, we have the GfK and nationwide consumer confidence figures to gauge consumer health. Mortgage approvals and lending data will measure credit activity. For the best measure of growth though, the PMI service, manufacturing and construction numbers will give a broad view of growth.
[B]Japan[/B] – The Japanese economic docket typically saves most of its market moving data to be released over one or two sessions. We will see this heavy round come over the next 48 hours. Notable indicators will include housing spending, housing starts, income and employment numbers. However, even though there is a greater focus on the health of the Japanese economy (as it can redefine this currency’s safe haven status), its market moving potential is still doubtful. The round of first quarter Tankan data, on the other hand, could end up supplying us with a considerable reaction as activity in Japan has a clear correlation to export activity. A key driver itself, the G20 summit will also rouse risk aversion or appetite – with clear implications to the now-questionable safe haven yen.
[B]Data for March 31 – April 7[/B]
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[B]Data for March 31 – April 7[/B]
[B]Date (GMT)[/B]
[B]UK Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japanese Economic Data[/B]
Mar 30
GfK Consumer Confidence (MAR)
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Mar 30
Household Spending (FEB)
Apr 1
PMI Manufacturing (MAR)
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Mar 31
Housing Starts (FEB)
Apr 2
G20 Summit in London
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Mar 31
Tankan Large Manufacturing Outlook (1Q)
Apr 7
Industrial Production (FEB)
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Apr 7
BoJ Rate Decision
[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]