Congestion In The Yen Crosses Reflects A Cool Off In Volatility, But Doesn't Preclude Breakouts
Few if any currencies were as active in the preceding three weeks as the Japanese yen. However, with risk appetite trying to find a steady ground, the yen crosses have attempted to find stability in congestion. Will this chop form stronger ranges or is this a mere pause before another major market-wide breakout? See what each of the DailyFX Analysts thinks below:
My picks: Short CAD/JPY Expertise: Fundamental and Sentiment. Average Time Frame of Trades: 1 day to 3 months
Given the current global macro environment of uncertainty and de-leveraging in financial markets, the Japanese yen is likely to continue appreciating against higher yielding currencies, particularly against commodity currencies like the Canadian dollar which is very dependent on the global demand for oil.
Sentiment Analysis
The ratio of long to short positions in the USDJPY stands at 1.08 as nearly 52% of traders are long, according to the FXCM SSI which measures the positioning of thousands of retail traders. Last week, the ratio was at 1.52 as 60% of open positions were long. Retail traders have been selling the USDJPY and short positions are up by 40.8% since last week.
The ratio of long to short positions in the USDCAD stands at 1.92 as nearly 66% of traders are long. Last week, the ratio was at 1.56 as 61% of open positions were long. Short positions are down by 23.3% since last week and retail traders have been covering their USDCAD short trades.
My picks: Range CHFJPY Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
There are certainly better technical levels to base trades on yen crosses around; but recent congestion following steep declines across the board (a sweeping rally for the Japanese currency) have left us with significant probabilities for breakouts and ill-defined levels to consider where a break will occur. Looking for the best fundamental and technical buffer for uncertainty, I'm looking at the range in CHFJPY. A range trade doesn't require a unique jump in volatility so it doesn't require more from the markets. Fundamentally, this pair is comprised of two popular funding currencies; and while the yen is far and away more highly correlated to risk and carry, it would take a far greater shift in the market to generate a breakout for this naturally tempered pair.
Technically, their is a relatively good range between 91 and 87; but these limits have not stood up to enough price action to confirm its resiliency. Resistance at 91 is a 38.2% fib of the Sep. 22nd to Oct. 10 decline; but 90.00/25 offers a more frequented ceiling - perhaps for more aggressive fills. Support is marked around 87 with a nest of daily lows. Fortifying the area, a 38.2% retracement of the Sept. 2000 to July 2008 bull wave is at 87.40. This will be a difficult pair to trade as trying to reach range extremes may keep me out of good swings, but it is important to keep reasonable stops and targets. I will only follow this pair until the end of the week and then reassess if it hasn't broken out.
My picks: Short GBP/JPY Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1 - 3 Days
I think that a true rebound in investor confidence is still a ways off, and as a result, I would prefer to stay long JPY. Right now I'm looking at GBP/JPY: yesterday's daily candle shows an absolutely massive top wick, suggesting looming resistance above. Daily oscillators remains bearish ,and as a result, I'm looking to sell GBP/JPY to target 170, if not the October 10 lows of 165.98.
My picks: EUR/JPY Short Expertise: System Trading Average Time Frame of Trades: 2-10 weeks
I continue to favor long-Japanese Yen positions, and I think we're going to see major JPY crosses decline further through the weeks ahead. With that in mind, I'd like to go short and stay short the EUR/JPY with a fairly wide stop. I'll sell now at market (137.50), with a stop above 141.75 and initial profit targets at recent lows of 132.23. Longer-term price targets will be to be determined.
My picks: Short USDJPY (Pending) Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
Sweeping panic across markets had seen traders liquidate carry trades funded with low-yielding currencies in recent weeks, making the Japanese Yen exchange rate a direct reflection of traders’ risk sentiment. It is no wonder then that the Yen suffered momentous loses as confidence returned after the weekend’s G7 summit. Continued bullish momentum now sees significant hurdles close ahead, with a major multiple support/resistance level near 102.97 closely followed by triple bottom support-turned-resistance near 104.10. These are further reinforced by a downward-sloping trend line that has marked price action since mid-August. Yesterday saw price action produce a Star candlestick on a test of 102.97. Look for confirmation in a bearish close on the current candle to position for a short, targeting a test of 98.00. For a chart illustrating the above as well as complete analysis on the other major currency pairs, please see the Candlestick Weekly Report.
My picks: Short USDJPY Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 2-4 Days
I am still medium term bearish on the USDJPY and after the recent appreciation of the pair on the back of the bank bailouts in the U.S. and Europe, it may present a good entry opportunity. The pair has started to turn lower as it ran into resistance at the 38.2% Fibo extension of the 110.62-97.94 decline. Not coincidently the U.S. equity markets saw resistance at similar Fibo levels. Therefore, both equity markets and the USDJPY could be headed lower to retest recent lows. Given the recent dismal retail sales report the outlook for the economy should dim which should weigh on the USDJPY.
My picks: Pending Short GBP/JPY Expertise: Fundamentals Combined with Technicals Average Time Frame of Trades: 2 Days - 2 Weeks
The GBPJPY has fallen 1700+ points since the beginning of September, but looks to have found near-term support at the 10/10 low of 165.98. Over the last three trading sessions, the pair has pulled back to move above 177.00, and we may see the pair continue to move higher over the week, but I anticipate the underlying downtrend to drag the pound-yen lower over the stated timeframe. I do not expect the pair to breakout of its range in the near-term, and I anticipate the pair to retest 165.98 for support once its breaks to the downside.