The broader currency market is still struggling with congestion; but this consolidation isn’t conforming to clear technical levels. This means the USDJPY range opportunity that we have highlighted should be treated with care.
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 97.00 (Pivot, Trend, Fibs)[/B]
[B]-Range Bottom: 94.60 (Trend, Fib)[/B]
· There is a clear link between [USDJPY and general risk appetite](http://www.dailyfx.com/story/currency/jpy_fundamentals/US_Dollar_Japanese_Yen_Exchange_1246939829543.html). This is the primary concern when trading this major; yet it is relatively easy to gauge this pair’s momentum and direction. Activity in equities, commodities and other currency pairs with greater yield differentials can signal whether this pair is heading for a breakout and whether there is follow through in store. For scheduled event risk, there are a few notable releases but the G8 meeting is key.
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· USDJPY has seen relatively volatile price action for months; yet this activity has not taken the form of clear direction. This lively congestion has fallen within a multitude of technical patterns; but their consistency is questionable. Immediate support is called up on a four-month trend, fib and relative pivot. We will not treat this as a hard level.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Long[/U][/B][B]: Entry orders will be placed at 94.85 which is within reach given recent price action.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 94.10 gives enough buffer to the trend for a loose test and reversal. 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 (75) at 95.60 and the second[/B][B] target will be 96.45. [/B]
[B]Trading Tip[/B] – The broader currency market is still struggling with congestion; but this consolidation isn’t conforming to clear technical levels. This means the USDJPY range opportunity that we have highlighted should be treated with care. There is no shortage of evidence for support to hold around 94.50/75; yet similar setups from this pair and other crosses recently should give us reason to pause. Clear trendlines, Fibs, pivots and many other concise technical indicators have fallen victim to erratic price action that can be overwhelmed by attempts to run obvious zones of stop and entry orders. To work with this danger, our strategy attempts to follow the general bias of higher swing lows rather than any specific technical levels. Our position maintains a relatively small risk profile; and yet our stop nearly covers the previous spike low from late May. Cautious traders can widen their stop to fully account for this swing down to 93.85; but the risk/reward profile will be skewed. Since this setup is already in play, we will cancel any open orders after 24 hours. Live positions should hit the first target before the weekend; or we will move stops up to minimize the potential for losses.
[B]Event Risk for US and Japan[/B]
[B]US [/B]– In periods of extreme market conditions, the US dollar is treated as a safe haven or burden depending on the direction of risk appetite. However, when sentiment fluctuations cool, the more lasting fundamental themes are exposed. The currency’s place in the global market and economy’s relative pace of recovery are the two key considerations for price action. However, discussions of replacing the dollar as a reserve currency are very sporadic and minor in the short-term. The BRIC’s meeting this week will no doubt echo their calls and China’s recent use of yuan-based foreign contracts give it more weight; but this is far from large scale. Growth on the other hand is immediate and ever-present. The Euro Zone is already preparing for positive growth; but the US is probably in the better position to pull back into the green first. Each indicator that crosses the wires over the coming week will weigh in on this debate. Consumer confidence, retail sales, industrial production, credit activity, and inflation numbers will all fine tune the consensus forecast for economic activity. The FOMC minutes due in the week ahead may similarly adjust the outlook from a policy official’s point of view.
[B]Japan [/B]– Japan is suffering its worst recession on record; yet central bankers and cabinet members are taking an optimistic turn on their outlooks. Both the BoJ and government have released statements that put the world’s second largest economy in ‘severe’ condition while suggesting the pace of contraction is easing. Whether this is seen as a true sign of improvement or merely a false hope depends on general sentiment. The yen will no doubt maintain its ties to the lower end of the return spectrum; but its risk profile could deteriorate with time. Even before the worst financial crisis since WWII struck, Japan was stagnating through an economic boom as officials struggled to reabsorb liquidity and spark investment after the last affliction.
[B]Data for July 8 – July 15[/B]
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[B]Data for July 8 - July 15[/B]
[B]Date (GMT)[/B]
[B]UU Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japan Economic Data[/B]
Jul 8
Consumer Credit (MAY)
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Jul 8-10
G8 Summit
Jul 10
U. of Michigan Confidence (JUL P)
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Jul 8
Eco Watchers - Outlook (JUN)
Jul 14
Advanced Retail Sales (JUN)
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Jul 13
Consumer Confidence (JUN)
Jul 15
Industrial Production (JUN)
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Jul 15
BoJ Rate Decision
[I]Questions? Comments? Send them to John [email protected][/I]