Japanese Yen Congestion Puts DailyFX Analysts On Both Sides Of The Market Momentum and direction have been drained from the Japanese yen's advance. Now settled into congestion, our Analysts are using technicals and fundamentals to take different views on the futures of the risk-sensitive currency. Find out who is on what side of the market below:
My picks: Sell EUR/JPY Expertise: Interest Rate, Volatility and Sentiment. Average Time Frame of Trades: 1 day to 3 months
After nearly a decade of fast appreciation, the EUR/JPY up trend looks very vulnerable. In fact, recent economic data points toward a weakening of real GDP growth in the euro area and I expect more euro weakness going forward. Moreover, ECB’s Jean Claude Trichet has no bias going into the next meeting and according to overnight index swaps, which measure interest rate expectations for next twelve months, traders expect the ECB to cut rates by 50 bps in 2009. My recommendation is to go short EUR/JPY at 162 limit for a 200 pips in profit potential. Looking ahead, I expect the EUR/JPY to test 160 in week and 155 in 3 months.
My picks: USDJPY long, 50% long now and 50% long at 109.25, stop on all at 108.32, target 113.10 Expertise: Technical Average Time Frame of Trades: 1 Month
As long as price is above 108.36, our preferred count is that wave C of Y (within the W-X-Y from 95.72) is underway towards 116-118 (these are measurements that we discuss in more detail in the morning technicals), which the interest rate outlook favors as well. Short term, 109.23/34 should provide support if needed. This is a Fibo confluence / daily pivot support level. The 200 day SMA at 108.90 may provide support as well.
My picks: Waiting for CHFJPY breakout Expertise: Combining Money Management with Fundamental and Technical Analysis Average Time Frame of Trades: 3 days - 1 week
Similar to the situation with the dollar-denominated majors, the carry crosses have ran into congestion after a significant rally across the market (the only exception being USDJPY). This pause in momentum is ominous as it may be a sign of oversold conditions or more perhaps more meaningfully a reevaluation of risk appetite in the markets. Regardless of what happened to be the primary driver for this stalling, the technicals, fundamentals and interest rates create a difficult situation in trying to determine a strong trade in terms of risk/reward and an analytical backing. Considering that many of the yen crosses have stalled in the middle of a steady decline with few levels of support immediately below, there is little impetus for setting up a strategy where risk is controlable. One promising pair however, is CHFJPY. In the recent swing low, a rising trendline from the February lows is backing a 50% fib retracement of the Jan. 22 to Jul 3 swing high and the 38.2% fib retracement of the Aug 17 to Jul 2 advance all falling around 99.90-100.20. On the shorter time frame, we can see a progressing wedge with a descending angle (though the dominate trend can still be argued to be bullish). For fundamentals, there is little event risk from either side of the market that can actually move the pair and risk is diluted with this pair as both the franc and yen are funding currencies. Interest rate expectations work in favor of the upside however, with the SNB expected to hold neutral for the rest of the year and the BoJ finding little scope to change its own benchmark. Considering all of this - and the recent congestion - the best policy would be to wait for a breakout to either side. I will be watching for a close on the higher time frames (240-minute, daily frequency) below 100 or above 100.75.
My picks: EUR/JPY short Expertise: System Trading Average Time Frame of Trades: 2-10 weeks
My USD/JPY short idea from last week didn't quite pan out, as the Yen never hit my stop-entry price to the downside. No harm, no foul. I remain bullish on the Japanese Yen, but my focus has now shifted to the EUR/JPY. The pair is currently flirting with its 200-day Simple Moving Average, and I think it's really setting up for a medium to long-term short. The timing of the short entry is a bit trickier, and this will admittedly be something I'll look to hold for several weeks at the minimum. But I propose selling the EUR/JPY at or above current market levels of 162.05, setting max risk on this position at the confluence of spike-highs and the 38.2% Fib retracement of the 169.50-160.90 move at 164.20. Profit targets will be aggressive, but given such sizeable stops, we would hope to make it worth our while at least. T1 will be set at 158.61, but I'm looking for a return to previous spike-lows at 153.00.
My picks: Long AUDJPY Expertise: Macro Fundamentals, Classic Technical Analysis Average Time Frame of Trades: 1 week - 6 months
The Australian dollar has been steadily losing ground against the Yen in recent weeks. Resistance has been marked by a downward sloping trend line connecting the highs since 07/29. Another, upward-sloping trend line connecting the lows since 08/13 reveals a triangle formation. Looking at 4-hour bars, AUDJPY price action showed a Morning Star bullish reversal pattern yesterday (8/19) and is testing above resistance at 95.80.
Strategy: Long AUDJPY on a bullish 4-hr close above 96.00, targeting 97.49. Set stop-loss at 94.80.
My picks: Long EURJPY Expertise: Fundamentals Combined With Technicals Average Time Frame of Trades: 1-2 Days
The EURJPY has been trading around its 200 Day SMA and has failed to make a clean break below. The pair bounced of the 161.00 price level which could signal that traders aren't ready to explore those levels. Risk aversion has been high on the back of the GSE troubles, but with European markets trading higher and the U.S. open pointing in the same direction a bout of risk appetite could give the pair a push higher. Target 165.62-the 8/11 high.