Volatility to start this week has been extraordinarily high. A distinct interest in risk appetite has sent the currency market reeling; and most pairs have either revived aggressive trends or otherwise produced tentative breakouts in the fray. Obviously, these are not conditions to find range trades in. However, for the risk-defiant, USDJPY may offer a noteworthy setup.
Why Would USDJPY Hold a Range?
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· [B][U]Levels to Watch:[/U][/B]
[B]-Range Top: 97.00 (Pivot, SMA)[/B]
[B]-Range Bottom: 94.25 (Fib, Range Low)[/B]
· Risk appetite is testing the theory that markets can remain rational longer than one can remain solvent. Contradicting the acceleration in risk building through currency positions, we have seen relatively little from fundamentals. This makes it difficult to reconcile fundamentals and technicals. USDJPY has reduced exposure to the elusive oscillation of risk appetite; but it is still highly volatile. From the docket, [the top risk is Friday’s NFP release](http://www.dailyfx.com/story/bio1/Forex_Traders_to_See_High_1243626088878.html).
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· Classical technicals offer up many levels to define price action; but volatility could wind up rendering these milestones immaterial. The fast pace of market activity over the past few active sessions is the most striking facet of USDJPY price action. Beyond that, it is still trying to play out a head-and-shoulders formation with an untimely rebound.
[B][I]Suggested Strategy[/I][/B]
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· [B][U]Short[/U][/B][B]: Half-sized (or smaller) entry orders will be placed at 96.75 which falls within the hard range.[/B]
· [B][U]Stop[/U][/B][B]: An initial stop of 97.65 is wide enough for a modest buffer to 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 (90) at 95.85 and the second[/B][B] target will be 94.75. [/B]
[B]Trading Tip [/B]– Volatility to start this week has been extraordinarily high. A distinct interest in risk appetite has sent the currency market reeling; and most pairs have either revived aggressive trends or otherwise produced tentative breakouts in the fray. Obviously, these are [not conditions to find range trades](http://www.dailyfx.com/story/strategy_pieces/weekly_range/Forex_Strategy_Outlook__US_Dollar_1243865437838.html) in. However, for the risk-defiant, USDJPY may offer a noteworthy setup. From an event risk and general fundamental standpoint, this pair finds itself relatively well-buffered to the market vague inequities. Both currencies have their ties to one side of risk trends; and event risk from each side is relatively tempered. The greatest concern through the economic docket is Friday’s NFP which clearly offers a distinct bias on price action. As such, we should expect to be out of this pair – or at least reduce risk – before the figures are released. For the strategy itself, resistance at 97 is relatively feeble with the confluence of a 50-day SMA and pivot going back to late February. Our entry looks to offer a decent buffer below the range cap to ensure we don’t miss the trade. The stop is wide enough to prevent a false-breakout driven by volatility to trip our level before turning back our way. As for targets, the average range should translate into a quick setup and execution regardless of whether the market moves with or against us. With that in mind, we will close our open orders by Tuesday in the US and active positions before the employment release.
Event Risk for US and Japan
US – Compared to the heavy list of event risk that is present on the global economic docket, the US calendar is exceedingly light. However, there are those indicators that could spur the dollar to untimely breakouts or inopportune reversals. Without doubt, the most threatening indicator due going forward is Friday’s change in non-farm payrolls. Regardless of whether risk appetite is rising or falling, this indicator has enough fundamental tout to turn the greenback on its head and recharge volatility (perhaps just long enough to produce a false breakout). Among the other notables (ISM service sector activity, consumer credit, and pending home sales) the data is notable and has its implications for longer-term growth; but they are far from consistent market movers. In the meantime, where data falls short, risk appetite will dominate. The dollar still has its roots in risk aversion and is unlikely to break anytime soon.
Japan – There is no doubting the yen’s catalyst for price action over the past week. Risk appetite has driven the Japanese yen and its crosses to incredible volatility. Trying to discount the direction or intensity of broader market sentiment going forward is extraordinarily speculative. However, considering the dense listings of notable event risk over the same period (four rate decisions, three notable GDP releases and US non-farm payrolls), we could see the market’s interest shift and chop replace the burgeoning trends we’ve seen develop. From the Japanese docket itself, there are few noteworthy economic releases on hand. The only indicator worth mentioning is Wednesday’s 1Q capital spending report. This is as vital an indicator to the broader economy as exports.
[B]Data for June 2 – June 9[/B]
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[B]Data for June 2 – June 9[/B]
[B]Date (GMT)[/B]
[B]US Economic Data[/B]
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[B]Date (GMT)[/B]
[B]Japan Economic Data[/B]
Jun 2
Pending Homes Sales (APR)
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Jun 3
Capital Spending (1Q)
Jun 3
ISM Non-Mfg Composite (MAY)
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Jun 7
Current Account Total (APR)
Jun 5
Change In NFPs (MAY)
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Jun 8
Econ Watchers Survey (MAY)
Jun 5
Consumer Credit (APR)
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Jun 9
Leading Index (APR P)
Written by: John Kicklighter, Currency Strategist for DailyFX.com
Questions? Comments? Send them to John ([email protected])