Timing And Strategy Critical To A High Risk CADJPY Range

Considering the level of fundamental activity over the coming week, taking a range-based trading approach is highly dangerous. As such, only the most risk loving and/or those speculating on a certain outcome from this economic wave should consider this a viable strategy. However, for those bold enough to weather the storm, CADJPY presents an attractive technical setup to work with.

[B]Why Would CADJPY Hold a Range?[/B]

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         ·         [B][U]Levels to Watch:[/U][/B]

         [B]-Range Top:       80.45 (Pivot, Fib, Former Trend)[/B]

         [B]-Range Bottom: 78.20 (Fib, SMA)[/B]

         

         ·         It is a dangerous time to look for ranges from the currency – and especially hazardous for those pairs that have a high correlation to risk trends. CADJPY just happens to be one of those pairs; and the presence of major data and announcements due over the coming week. The biggest threat to stable markets is the G20 meeting taking place tomorrow in Washington. Sentiment could further be complicated by the US and UK GDP releases. 

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         ·         The technical formation behind CADJPY is somewhat complicated. After cutting a steady three-month bullish trend channel, the pair has recently curbed momentum and has since taken to congestion with the threat of a genuine reversal. Resistance is seen around 80.50 which was former resistance on a range going back to November.

         

         [B][I]Suggested Strategy[/I][/B]

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         ·         [B][U]Short[/U][/B][B]: Half-sized entry orders will be placed at 80.10 which is aggressive.[/B]

         ·         [B][U]Stop[/U][/B][B]: An initial stop of 80.90 covers what could be new resistance not last week’s highs. 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 (80) at 79.30 while the second[/B][B] target is set to 76.50. [/B]

                         [B]Trading Tip [/B]– Considering the level of fundamental activity over the coming week, taking a range-based trading approach is highly dangerous. As such, only the most risk loving and/or those speculating on a certain outcome from this economic wave should consider this a viable strategy. However, for those bold enough to weather the storm, CADJPY presents an attractive technical setup to work with. The pair recently broke pace on a three-month rising trend channel after failing to push through a major Fib retracement. Currently, the pair has developed temporary congestion until the market can confirm whether this is merely a pause in a larger bull trend or the makings of a genuine reversal. Our strategy looks to establish a quick trade that falls within the range. To compensate for the risk, we have cut our proposed position size in half, put in for an aggressive entry, a nearby stop and a first target that is well within the congestion zone. On the other hand, our second objective is set well below the range as a speculative turn. However, with our rule that the stop will be trailed on the second lot when the first takes profit, this does not add any additional risk. This strategy reduces risk; but we still cannot ignore the event risk that ends this week. Friday’s G20 summit could dramatically shift risk sentiment; therefore, we will close any open orders by the early US session and tighten stops before the weekend drains liquidity.

[B]Event Risk for Canada and Japan[/B]

[B]Canada[/B] – The economic calendar levels out for the Canadian dollar over the coming week; but the data and announcements of the past week could still have a lingering impact on the currency going forward. After the Bank of Canada cut rates unexpectedly, lowered its growth forecasts sharply and hinted at a possible shift in policy towards quantitative easing; the currency may now be fundamentally stationed on the same level as its major counterparts that are deep into recession and financial crisis. The market will further evaluate the relative strength of the Canadian dollar (and therefore its currency) late next week with the February reading of GDP. This monthly figure is not nearly as market moving as the quarterly figure; but considering the interest in growth, its timeliness imbues a premium.

[B]Japan[/B] – Fundamentals fill out for Japan over the coming week. The greater concern comes from those drivers not on the docket. Still holding a direct correlation to risk aversion, the yen may be driven to high volatility after the various policy official meetings starting scheduled over the next few days. On Friday, the G7 and G20 will convene and update progress on their effort to enact a global approach towards correcting a worldwide crisis. Should responsibilities be redefined or additional objectives be put into place, it could alter the projected effectiveness of such a broad effort. Holding up the risk over the illiquid weekend, World Bank and IMF summits could further skew the outlook for risk. And, though it is expected to have less of an impact on price action, we will also follow the heavy round of economic indicators due including: retail sales, manufacturing, industrial production, the BoJ rate decision and employment.

                                     [B]Data for April 24 – May 1[/B]

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                                   [B]Data for April 24 – May 1[/B]

                                                     [B]Date (GMT)[/B]

                                   [B]Canadian Economic Data[/B]

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                                   [B]Date (GMT)[/B]

                                   [B]Japanese Economic Data[/B]

                                                     Apr 30

                                   Gross Domestic Product (FEB)

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                                   Apr 27

                                   Large Retailers’ Sales (MAR)

                                                     

                                   

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                                   Apr 29

                                   Industrial Production (MAR P)

                                                     

                                   

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                                   Apr 30

                                   Bank of Japan Rate Decision

                                                     

                                   

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                                   Apr 30

                                   Jobless Rate (MAR)

[I]Questions? Comments? You can send them to John at <[email protected]>.[/I]