Matching the Yen Rebound to Meaningful Technicals

[B]My picks:[/B] Short CADJPY
[B]Expertise:[/B] Combining Money Management with Fundamental and Technical Analysis
[B]Average Time Frame of Trades:[/B] 3 days - 1 week

Up until this morning, the advance in risk appetite and yen crosses was unfailing. From a fundamental perspective, the fuel behind this move was surprising. Over the past week, there have been few indicators crossing the wires that could catalyze expectations for a true global economic recovery. Sure, a build up in modest improvements from many sources is encouraging; however, on the whole, the recession is merely letting up in pace and is still far from positive growth. This means that momentum and sentiment was likely primarily responsible for the advance - and was likely to take at least a break sooner or later. Unfortunately for me last week, this breather wouldn’t come; and my CADJPY stop was run as the pair looked to fullfill its run up to the top of its rising trend channel. After marking a triple top in this area, the pair looked to work on its first down day in five sesions.

There are many reversals in favor of the yen across the market; but it is difficult to match up this turn with notable technicals and immediate fundamentals (the underlying, long-term bias supports tempering risk appetite). EURJPY offers a notable opportunity with a double top around 137.50 that has acted as the turning point for the market. However, the ECB rate decision holds too much influence to make this a safe setup. On the other hand, CADJPY once again fits into its role nicely. The chart is encouraging with the hold at the top of the rising trend channel and shorter-term triple top. However, upon writing this, the market has moved far from the 89.05/15 high that was absolute resistance. I won’t chase this pair and will instead place a limit order at 88.50. My initial stop will be 89.75 and the first objective will equal this risk at 87.25. A second target will look for a deeper retracement to 85.25. Obviously, the greatest burden to this trade is risk appetite, but native event risk should also be monitored. The BoC rate decision will defer to further steps toward quantitative easing; while Friday’s employment change can easily follow a surprise outcome to either side of the consensus. I will cancel these orders before the labor figures cross the wires on Friday or if spot hits 86 before I’m entered.