Both the US dollar-based majors and yen crosses threatened trend defining breakouts over past 24 hours. While, many of the notable and liquid pairs have hovered near the relative extremes of their respective ranges, we have seen the market test the stability of the past three months with a few miscellaneous breaks.
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 163.10 (Fib, Double Top)[/B]
[B]-Range Bottom: 153.45 (Fib, Trend, SMA, Range)[/B]
· Traditional event risk often has its influence on either the British pound and less frequently for the Japanese yen; but when risk appetite is threatening to market a major turning point, little else can overshadow its influence. Market sentiment has been highly volatile over the past week; but direction has been notably lacking. However, this broad driver is easy to gauge through the often correlated stock market. Only if risk settles, then watch the docket.
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· We are currently looking at the most obvious level of technical support that has been seen in some time. A rising trend, 100-day SMA and fib confluence all fall within the 153.45/95 area. However, a boundary this obvious also builds pressure into the potential head-and-shoulders formation that has simultaneously developed over the past month.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: An entry at 153.90 is set very near the absolute range bottom for the past week. [/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 152.80 is relatively tight but essential given the probability of a break out. 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 (110) at 155.00 and the second[/B][B] target is set to 158.75. [/B]
[B]
Trading Tip[/B] – Both the US dollar-based majors and yen crosses threatened trend defining breakouts over past 24 hours. While, many of the notable and liquid pairs have hovered near the relative extremes of their respective ranges, we have seen the market test the stability of the past three months with a few miscellaneous breaks. However, a true, definable breakout will likely be a sweeping shift across the markets (and more than likely through risk appetite) rather than in one specific currency. While such a catalyst has been fended off for some time, the probability for the inevitable breakout has just increased with time. This means there is a high risk of breakout specifically for GBPJPY – which has a particularly close correlation to market sentiment. Only the most risk tolerant should attempt a range on this pair; and for those that do, vigilance and a strong setup is absolutely essential. For our strategy, the first consideration is for reduced position size. Beyond that, we have set entry very close to range support and the stop is set relatively tight as a break can catalyze quickly with this pair. Considering the high level of volatility behind this pair and risk appetite in general, we should expect to be entered and hit either the stop or first target quickly. We will remove all open orders by tomorrow. This is certainly a position to monitor. If equities, commodities or fixed income markets start breaking down (especially in sync), expect GBPJPY to soon follow.
[B]Event Risk for the UK and Japan[/B]
[B]UK [/B]– There is a significant list of economic releases on the British docket; but the pound seems to be taking its guidance once again from risk appetite. This past week, the optimistic commentary to come out of the Jackson Hole Symposium was marred by the same caution-riddled language that we have seen over the past few months. On the whole, risk appetite seems to be steadily rising; but at a much slower pace than previous months. This is something to watch as volatility rises and market participants search for direction. As for event risk, the most high-profile indicator on deck is the first update on the 2Q GDP numbers. Updates on component figures can offer a significant shift in speculation; but historically, the UK revisions are modest and infrequently surprising. Other notable releases to keep an eye on include the GfK consumer confidence, CBI quarterly industrial activity and the start of the PMI data after the weekend.
[B]Japan [/B]– Scheduled event risk from the Japanese docket struggles to influence yen price action even in the calmest seas. When risk appetite is in flux, the Japanese currency single mindedly follows the pace that sentiment sets. This is the reason for the yen’s congestion over the past few weeks. While equities and other popular, speculative-based markets continue to experience a steady advance, it is increasingly funded by investment capital finding its way in from the sidelines, rather than new wealth seeking a higher return. Eventually, this divergence will have to rectify itself. Either risk appetite will recovery or the appreciation in capital markets will have to stall. In the meantime, while traders try to find a long-term bearing, data will feed long-term, Japanese growth forecasts. A detailed list of timely indicators (the jobless rate, household spending, and industrial production among others) will offer some direction.
[B]Data for August 26 – September 2 [/B]
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[B]Data for August 26 – September 2[/B]
[B]Date (GMT)[/B]
[B]UK[/B][B] Economic Data[/B]
[B][/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
Aug 27
UK CBI Quarterly Distributive Trades
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Aug 27
Jobless Rate (JUL)
Aug 27
GfK Consumer Confidence (AUG)
[B][/B]
Aug 27
Household Spending (JUL)
Aug 28
GDP (2Q P)
[B][/B]
Aug 30
Industrial Production (JUL P)
Sep 1
PMI Manufacturing (AUG)
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Aug 30
Large Retailers’ Sales (JUL)
[I]Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John at <[email protected]>
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