Yen Crosses See Volatility, Breakouts and Technical Barriers

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

Beyond a sudden surge in buying activity over the past 24 hours, there is little consistency in the technical regulation for the yen crosses. Will this updraft spur momentum into a new trend or will volatility fade ahead of congestion? This was the same question I was confronted with last week; and I ultimately made the wrong call. Many of the liquid yen pairs had come upon heavy support; but the collective floor was trying to hold out against hearty bear trends. Ultimately, momentum would hold out just long enough to force its boundaries; and the market would promptly turn to congestion quickly after this breech. For my GBPJPY layout last week; I was taken out quickly. after a five-month rising trendline was forced. The reduced position size I entered with proved a good buffer.

This week, I am coming to the same quality market for the yen. We are once again in the midst of a three-session rally and technical resistance is coming into sight. However, we are still a ways off from noteworthy technical congestion. For me, this is a sign that the market could continue to drift higher until technicals take control. At the same time, the drive behind this move doesn’t seem stable. An upswing in sentiment is clear as well for equities, commodities and fixed income; but what are the fundamentals for the move? The start of second quarter earnings may provide the fuel; but this data is debatable. Like the tentative improvements in timely growth readings, the uptick in earnings is still very early; and thanks to accounting rules, the numbers can be spruced up at the time of reporting. This is especially true of the US banks reporting recently. The instability of economic conditions, ongoing drop in consumer spending and reduced capital should mean constrained revenues. Therefore, record income like seen with Goldman Sachs is likely due to government support - something that will not likely go unaddressed. However, short-term waves in sentiment can be fueled through its own existence. Therefore, I will refrain from any early calls in the yen crosses as we are between technical levels and momentum. In the meantime though, I am watching USDJPY and the former support zone between 94.00/40 which held up the market since late February. Since this pair is somewhat buffered to risk appetite and the first cross to come upon notable resistance; it will be my gauge for the currency.